Tax payable on non-qualified investments
The new rules apply to investments acquired after March 22, 2011. They also apply to pre-March 23, 2011 investments that first become non-qualified after March 22, 2011.
An investment that was a non-qualified investment before March 23, 2011 will continue to be subject to the old rules that provided for either an income inclusion with an offsetting deduction or the 1% monthly tax.
If, in a calendar year, an RRSP or RRIF trust acquires property that was a non-qualified investment or if previously acquired property becomes non-qualified, a tax is imposed on the annuitant of an RRSP or a RRIF.
The tax is equal to 50% of the fair market value (FMV) of the property at the time it was acquired or it became non-qualified.
The tax is refundable in certain circumstances. For more information, see Refund of taxes paid on non-qualified or prohibited investments.
The annuitant is also liable for the 100% advantage tax on specified non-qualified investment income if this income is not withdrawn promptly.
Income earned and capital gains realized by an RRSP or RRIF trust on non-qualified investments will continue to be taxable to the trust, regardless of when the investment was acquired. If an investment is both a non-qualified investment and a prohibited investment, it is treated as a prohibited investment only and the trust is not subject to tax on the investment earnings.
An annuitant subject to this tax is required to file Form RC339, Individual Return for Certain Taxes for RRSPs or RRIFs for Tax Year 2011. The return must be filed no later than June 30 of the following year. Any tax owing must also be paid by that date. For payment remittance options, see Make a payment.
The Department of Finance has advised that it is recommending that the June 30, 2012 deadline to file a Form RC341, Election on Transitional Prohibited Investment Benefit for RRSPs or RRIFs, be extended to March 1, 2013.
Reporting requirements by the RRSP or RRIF trust
Financial institutions are required to report information to us and the annuitant when an RRSP or RRIF trust begins or ceases to hold a non-qualified investment in a year.
Financial institutions must, by no later than the end of February in the year following the year in which the non-qualified property was acquired or previously acquired property became non-qualified, provide relevant information to us and the annuitant. This information includes:
- a description of the non-qualified investment;
- the date that the non-qualified investment was acquired or disposed of (or became or ceased to be non-qualified), as applicable, and the fair market value of the investment at that date; and
- the RRSP or RRIF contract or account number.
This information is necessary to enable the annuitant to determine the amount of any tax payable or of any possible refund of tax previously paid.
The filing due date of the end of February for financial institutions to provide the relevant information to us and the annuitant is extended to May 31, 2013.
Forms and publications
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