RRSP changes could mean huge tax hit for small investors
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Response from Finance Minister Flaherty
For the past few years, the government of Canada has been cracking down on tax avoidance. One recent change in this year's federal budget was the introduction of changes to tax rules surrounding RRSPs, and the rule that someone cannot invest more than 10 per cent into a "non-arm's length" company. Although this scheme affects only a very small portion of our members, we wrote a letter to the minister of Finance Jim Flaherty to underline our concerns with the heavy tax levies and relatively tight deadlines associated with those changes. Specifically, we were concerned with:
- The 100 per cent tax on gains since March 22nd 2011 if not removed by June 30th, 2011.
- The 50 per cent tax on the fair market value of the investments that are not removed from RRSPs prior to the end of 2012.
- The ability to "swap" the prohibited shares in an RRSP with cash or other property of the same value so as not to incur taxes on the RRSP withdrawal, while welcomed, may pose some significant problems for smaller investors.
We are happy to see that, since the letter was sent, the government announced their intention to lower these taxation penalties. They seem to have recognized that some may have legitimately entered these types of investments in the past and should not be so severely penalized.
