Tax payable on non-qualified investments on RRSPs and RRIFs
If the RRSP or RRIF trust acquired a non-qualified investment or if a previously acquired property becomes a non-qualified investment, the investment will be subject to a special tax. The tax is equal to 50% of the fair market value (FMV) of the property at the time that it was acquired or that it became non‑qualified, and the annuitant must file Form RC339, Individual Return for Certain Taxes for RRSPs, RRIFs, RESPs or RDSPs, with a payment for any balance due, no later than June 30 following the end of the calendar year.
Notes
Any increase in the value of a non-qualified investment at the time of disposition is not reported on the Form RC339, Individual Return for Certain Taxes for RRSPs, RRIFs, RESPs or RDSPs. 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. The trust must file a T3RET, T3 Trust Income Tax and Information Return and is liable to pay any tax owing.
Any charges or fees that the financial institution has passed on to the annuitant as a result of the T3 Return having been filed is a matter between the annuitant and the financial institution.
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
The tax payable on non-qualified investments is refundable in certain circumstances. For more information, refer to 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annuitant is also liable for the 100% advantage tax on specified non-qualified investment income if this income is not withdrawn promptly.
For more information, refer to Income Tax Folio S3-F10-C2, Prohibited Investments – RRSPs, RESPs, RRIFs, RDSPs, FHSAs and TFSAs. For more information on acceptable investments, refer to Income Tax Folio S3‑F10‑C1, Qualified Investments – RRSPs, RESPs, RRIFs, RDSPs, FHSAs and TFSAs.
Reporting requirements by the RRSP or RRIF trust
Financial institutions are required to report information to the CRA 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 the CRA 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 FMV of the investment at that date
- 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.