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Avoiding RRSP Fees For Transfers Out
May 25, 2018
11:19 am
Bill
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My question is not about tax deductibility of fees, there's tons of info out there re that as Top It Up points out.

Quite the contrary, I'm suggesting fees paid out of registered accounts should be included as income as it's a withdrawal from a registered retirement plan. Also the amount, when originally contributed, garnered a tax deduction.

There should be no net tax difference between the two options, paying out of after-tax money outside the plan or out of pre-tax money inside a plan, as far as I can see.

May 25, 2018
11:40 am
Top It Up
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Bill said
...I'm suggesting fees paid out of registered accounts should be included as income as it's a withdrawal from a registered retirement plan. Also the amount, when originally contributed, garnered a tax deduction.

There should be no net tax difference between the two options, paying out of after-tax money outside the plan or out of pre-tax money inside a plan, as far as I can see.  

I think this is a nasty set of calculations and bookkeeping. Do I have to claim the fees paid out as a yearly withdrawal NOW or can I wait until my last withdrawal from the plan to claim them cumulatively? And if I wait to claim them cumulatively do I claim the actual yearly amount paid OR do I have to segregate those fees and show them as income separately and the investment income earned on the cumulative total? And what about tax rate on the cumulative amount would I calculate the amount owing as if claimed yearly or just the tax rate in my 96th year, when presumably I would be paying a lower rate?

May 25, 2018
2:47 pm
Bill
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Per the income tax rules anything coming out of a RRIF is taxable income in the year it comes out, no cumulative concept.

May 25, 2018
3:22 pm
James
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I don't know the specific answer to Bill's question but Bill what would you say about stock losses and fees within a RRSP? If I invest $100 in a stock and take a tax deduction (pre-tax money), and the stock price declines $30. Now I withdraw $70 and pay tax on it. What happened to the $30? Did I 'spend' it? Or is it just a loss. What if my stock trading fee was $10? Did I 'spend' that too?

May 25, 2018
3:25 pm
Rick
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James said
I don't know the specific answer to Bill's question but Bill what would you say about stock losses and fees within a RRSP? If I invest $100 in a stock and take a tax deduction (pre-tax money), and the stock price declines $30. Now I withdraw $70 and pay tax on it. What happened to the $30? Did I 'spend' it? Or is it just a loss. What if my stock trading fee was $10? Did I 'spend' that too?  

No....you gambled it. sf-yell

May 25, 2018
3:33 pm
Loonie
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I checked my records and can now confirm that the T4RSP that I rec'd from National Bank when closing down the account did not include the $100 fee for closing account which was taken out of the RSP immediately before closing it.
I am 99.9% sure that the same thing happened when I closed an RSP at HSBC and am not inclined to go look for it as I am quite sure.
Scotia has not yet issued its slip as it was done this year (LIRA).
I also closed an RIF at TD, but there was no fee for that.

I have no other business with National or HSBC, and received no other T slips from either. Given that National's was over $50, they would have to have sent a slip which included it if it were meant to be taxable income to me.

It may not make sense to you, Bill, but that's the way it is.

i think that what happens, effectively, is that the fee then becomes income to the FI, which is then taxed on it according to its own situation. I don't think it avoids the scrutiny of the tax man, just gets moved over to a different column.

Perhaps a comparison to MERs on mutual funds would fit. You never receive them, you do effectively pay for them, but you are not taxed on them. The money just stays with the FI. This would be consistent with James' concern. As many of you know, I am no longer a fan of RSPs, but James may have nailed one of the few reliable benefits.

This year I will ikely be closing another RIF, so we'll see what that brings. It may be no-fee though as I haven't decided yet how to arrange my withdrawal. I am closing them as fast as I reasonably can, in consideration of tax implications.

May 25, 2018
5:21 pm
Bill
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James, the $30 loss is not a withdrawal from the registered plan, so it's not income to you.

But you mention the $10 stock trading fee. And Loonie refers to MERs and account closing fees that do not appear on the T4RSP. So maybe for tax purposes such amounts are considered to be costs of the plan itself, not of the annuitant, thus CRA doesn't include them in the income of the annuitant. Maybe that's the logic - in any event, good, no tax implications.

And, yes, this would be income to the FI but that's no different than any money we or a business spends, it's always taxable revenue to the selling business regardless of any tax implications or lack thereof to the spender.

I kind of figured Norman1 would have pored through the Income Tax Act and cited the appropriate legislative reference by now - !?

May 25, 2018
8:13 pm
Norman1
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I don't have an Income Tax Act reference for this.

I do think it depends on how the stock trading commission or RRSP transfer fee is charged:

  1. The commission/fee is charged to the RRSP before any deregistration.
  2. A partial deregistration is done and the commission/fee is charged against the deregistered funds.

With #1, there's no withdrawal received by the annuitant to report on a T4RSP slip. With #2, there is.

I think financial institutions are aware of this and do #1.

As well, RRSP transfer fees and RRSP account fees are, in effect, deductible when paid directly by the RRSP. One deducted the RRSP contribution. The charged fees reduce the contributed funds and will never be withdrawn and added back to one's taxable income.

If the government allowed a deduction for RRSP fees paid directly by the annuitant, then that, in effect, increases their RRSP contribution room by the amount of such fees.

May 26, 2018
5:05 am
Loonie
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No, I never found any rules or regs about this either - and I looked a few years ago, in anticipation of the issue arising.

Yes, obviously FIs would go with #1. I don't think any do #2.
Most customers who are aware of what is going on are already annoyed enough that they have to pay a fee to get their own money back without then having a tax issue with the fee. FIs would not want to have to deal with this reaction, so they avoid the issue.
The FIs can, if they are clever about it, give the customer the bank draft, minus the fee and the withholding tax, and, if the customer wonders why they received much less than expected, mention only the withholding tax.
Further, most FIs operate in such a way that a partial deregistration would incur an additional fee, at which point the whole exercise becomes absurd.
At all 3 of the FIs where I have closed RSP/RIFs and had to pay a fee, none of the bank staff I dealt with saw fit to point out that there was a fee, but all decided to tell me about the tax being withheld by gov't (10-20-30%), even though I didn't ask.
One of them had the draft waiting for me when I arrived at my appointment; another took the better part of a month and two appointments to be hand me the draft; and the third would only send it in the mail, following a personal visit! The third actually lied and told me there would be no fee, but I knew better and couldn't be bothered educating him - not my job (Scotia).

Norman makes a good point that the fees were already deductible and likely deducted, as part of the original RSP contribution. And thus, as that amount was never paid out to the individual, they are never taxed. One could argue that some of that fee came from profits within the plan, and thus were not deducted, but the basic point remains that they are not taxed because they are never handed over to the planholder - which brings me back to my original posts, #11 and #16.

May 26, 2018
9:04 am
Norman1
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Section 146 of the Income Tax Act deals with RRSP's. I suspect there is something there! sf-laugh

Well, subsection 146 (8) makes certain payouts of an RRSP, called benefits, taxable to the annuitant:

Benefits taxable

146 (8) There shall be included in computing a taxpayer’s income for a taxation year the total of all amounts received by the taxpayer in the year as benefits out of or under registered retirement savings plans, other than excluded withdrawals (as defined in subsection 146.01(1) or 146.02(1)) of the taxpayer and amounts that are included under paragraph (12)(b) in computing the taxpayer’s income.

The definition of "benefits" is among the definitions in subsection 146 (1):

benefit includes any amount received out of or under a retirement savings plan other than

(a) the portion thereof received by a person other than the annuitant that can reasonably be regarded as part of the amount included in computing the income of an annuitant by virtue of subsections 146(8.8) and 146(8.9),

(b) an amount received by the person with whom the annuitant has the contract or arrangement described in the definition retirement savings plan in this subsection as a premium under the plan,

(b.1) an amount in respect of which the annuitant pays a tax under Part XI.01, unless the tax is waived, cancelled or refunded,

(c) an amount, or part thereof, received in respect of the income of the trust under the plan for a taxation year for which the trust was not exempt from tax by virtue of paragraph 146(4)(c), and

(c.1) a tax-paid amount described in paragraph (b) of the definition tax-paid amount in this subsection that relates to interest or another amount included in computing income otherwise than because of this section

and without restricting the generality of the foregoing includes any amount paid to an annuitant under the plan

(d) in accordance with the terms of the plan,

(e) resulting from an amendment to or modification of the plan, or

(f) resulting from the termination of the plan; (prestation)

My reading of all that is fees and commissions paid directly by an RRSP aren't "benefits" received or deemed to be received by the annuitant. Consequently, such payments are not taxable as an RRSP withdrawal for the annuitant under 146(8).

May 26, 2018
9:23 am
Top It Up
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All this was already covered off in layman's language, by the quote from Moneysense.ca, in post #20.

May 26, 2018
11:08 am
Loonie
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Top It Up said
All this was already covered off in layman's language, by the quote from Moneysense.ca, in post #20.  

No; they are quite different, as Bill said earlier (#21). I think you are making it more complicated, not less.

The Moneysense piece is about tax deductibility, which is no longer the issue, as we know fees are not deductible.

The current question is whether they are considered as part of total income when paid out, and the consistent answer is that they are not. Thus, the question about deductibility is not relevant.

All that the average person needs to know from this discussion is that they are not going to be taxed on the fees that the FI may charge for RSP/RIF transfers and close-outs.

May 26, 2018
4:02 pm
Top It Up
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Norman1 said
My reading of all that is fees and commissions paid directly by an RRSP aren't "benefits" received or deemed to be received by the annuitant. Consequently, such payments are not taxable as an RRSP withdrawal for the annuitant under 146(8). 

Loonie said
I think you are making it more complicated, not less. 

I stand by my comment, in post #31.

May 26, 2018
6:52 pm
Bill
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Top It Up, you are confused. Your posts #31 and #20 deal with the deductibility of fees. Post #20 specifically refers to line 221 re deductions.

As we have indicated the topic here is not about the deductibility of fees, it's about whether these fees paid out of registered plan funds need to be included as income for income tax purposes, same as other withdrawals from registered retirement plans. That's what we were trying to figure out. What you've just cited from Norman1, particularly the second (last) sentence, confirms that such payments are not taxable (as income).

May 26, 2018
8:57 pm
Loonie
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Right - "as a consequence".

The fundamental point remains that fees are not income.
So, OF COURSE, they cannot be taxable. Moneysense refers to tax deductibility.

I will not pursue this further with you.

May 27, 2018
6:44 am
GR
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Perhaps we can return to the original topic. Does anyone know any financial institutions that don't charge RRSP transfer out fees AND also reimburse transfer out fees charged to clients by another institution?

May 27, 2018
7:26 am
Loonie
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No, I don't think there are any, and can't think of any reason why there would be.
Certain individuals may be able to negotiate this on a one-off basis if they are bringing enough money into the FI and are investing it for longer term, but it would be an exception.

May 27, 2018
8:01 am
Bill
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GR, there are a lot of FI's out there, and those who don't charge transfer out fees are proud to indicate that on their websites. Re your latter criterion, while some advertise they will reimburse many don't indicate they'll do so, but if you talk to them they will if your business is worth it to them, so it's not possible to get a definitive list of those who'll reimburse.

Unless you're transferring frequently or your balance is small I wouldn't obsess about fees, there are far more crucial total return considerations than a $150 transfer out fee on a $50K or more RRSP. You'll be drawing your money out of your RRIF for a while, doubt a few small fees along the way will have a noticeable impact on your quality of life over those 20 years or so.

May 27, 2018
1:42 pm
moneyhelp
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Top It Up said

I have NO experience transferring in funds to RBC but I am currently in the process of divesting/moving my RRSP holdings out of RBC and there is a Transfer Out Fee of $135 per request; the receiving credit union said they WILL NOT reimburse the fees.

It will take me 5 years to collapse the laddered GICs in the account, for a total transfer out fee of $675.00 + GST.  

I depends what type of RRSP you have with RBC. I have a standard mutual fund that I started with my dad when I was really young paying high MERs, I am planning on collapsing this within the next month and transfer over to Questrade RRSP and I have already confirmed for the type of mutual fund RRSP I have, it will cost me $50 for the transfer that they take off the cash proceeds when they collapse the account.

May 27, 2018
2:15 pm
Top It Up
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moneyhelp said

I depends what type of RRSP you have with RBC.  

I guess, although I will say, that $50 looks more like an RRSP Withdrawal fee rather than their standard $135 RRSP Transfer Out fee. It's good that you have the rate confirmed.

I have a high-value, self-administered RRSP with them BUT, since we're no longer on speaking terms, I'll be paying the posted rates while closing out the account.

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