Tax payable on prohibited investments

If the RRSP or RRIF trust acquires a prohibited investment or if previously acquired property becomes prohibited, the annuitant will be subject to a special tax equal to 50% of the fair market value (FMV) of the investment, 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.

The tax is refundable in certain circumstances. For more information, refer to Refund of taxes paid on non‑qualified or prohibited investments.

When the prohibited investment ceases to be a prohibited investment while it is held by the RRSP or RRIF trust, the trust is considered to have disposed of the property at its FMV right before that time and to have re-acquired the property for the same amount at the same time.

The annuitant is also liable for the 100% advantage tax on income earned and capital gains realized on prohibited investments.

The 100% advantage tax applies to income earned, and the portion of any realized capital gain that accrued, regardless of when the prohibited investment generating the income or gain was acquired.

For more information, refer to Income Tax Folio S3-F10-C2, Prohibited Investments – RRSPs, RESPs, RRIFs, RDSPs, FHSAs and TFSAs.

Forms and publications

• Form RC339, Individual Return for Certain Taxes for RRSPs, RRIFs, RESPs or RDSPs
• Income Tax Folio S3-F10-C2, Prohibited Investments – RRSPs, RESPs, RRIFs, RDSPs, FHSAs and TFSAs