January 24, 2013
Important Proposed Changes to Co-op RRSP Rules, by Hazel Corcoran
If individuals in your co-op hold co-op shares in a self-directed RRSP, there are two important updates which CWCF wants to bring to your attention. These updates are relevant in cases where individuals (or individuals along with related parties) held 10% or more of any class of the shares in a co-op on March 23, 2011, with some or all of the shares in RRSPs. People in this situation are eligible for the transition relief provisions (meaning they need not pay the penalty tax), and the rules for transition relief are being changed for the better.
Previously, for individuals who filed a form (RC341) with the Canada Revenue Agency by June 30, 2012, the transition relief period lasted for 10 years.
The two changes which have been proposed by Finance Canada are to change the deadline to file form RC341 to March 1, 2013, and also to remove the 10-year expiry date for the relief measures. If you qualify, this means that you need not take the capital out by 2022 but can leave it in indefinitely, as long as you have filed this form, or will file it by March 1, 2013. Then within any given year if there are earnings paid on your shares, you must withdraw them within 90 days of the end of each year, and pay tax on them. The rule about paying tax on earnings was already in place. See: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ntvdnc/rlf-eng.html.
For the CWCF Guide on the RRSP changes written in April 2012, click this link. There may be other changes coming which are relevant for co-ops using self-directed RRSPs. We continue to work with co-op sector organizations on this issue and will keep you posted of further developments.
There are two qualifications regarding this information. One is that these changes are currently only legislative proposals. See:http://www.fin.gc.ca/drleg-apl/ita-lrir-dec12-l-eng.asp. However, given that the changes are proposed by the government, it seems very likely that they will be enacted. The second qualification is that CWCF staff members are not tax professionals. If you are affected by the Co-op RRSP rule changes, we encourage you to consult a tax professional.
The relevant sections of the proposed legislation are available here, and an explanatory notes are available here. At each link, see:
- Clause 35 (Transitional Rule) re: the change of date to “before March 2, 2013”.
- Section 207.01(12) – “transitional prohibited investment benefit” definition, and note that the reference to “before 2022” which was previously there is proposed to be removed.