Tax payable on prohibited investments
If, in a calendar year, an RRSP or RRIF trust acquires property that was a prohibited investment or if previously acquired property becomes prohibited, 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 prohibited.
If the prohibited investment ceases to be a prohibited investment while it is held by the trust, the trust is considered to have disposed of and immediately re-acquired the property at its FMV.
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 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 regardless of when the prohibited investment generating the income or gain was acquired.
If an investment is both a non-qualified investment and a prohibited investment, it is treated as a prohibited investment only.
An annuitant subject to this tax is required to file Form RC339, Individual Return for Certain Taxes for RRSPs, RRIFs, RESPs or RDSPs. 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 to the Canada Revenue Agency.
If you determine that a particular non-qualified investment held by your RRSP or RRIF trust is also a prohibited investment for the trust, contact your plan issuer or carrier.
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