Questionable RRSP/RRIF schemes

It is RRSP season again which unfortunately means that schemes and frauds will be on the increase.

The Canada Revenue Agency posts current schemes throughout the RRSP season, but generally speaking they suggest taxpayers should avoid schemes that promise the following:

• Offers that allow depositors to withdraw funds from an RRSP or RRIF without paying tax.   While there are times when a financial institution can agree to unwind an RRSP at no time will a depositor be released from their tax liability upon cashing out an RRSP.
• Promoters often promise to return part of the taxpayer's investment by offshore debit or credit cards, offshore bank accounts or loan-back arrangements.
• Immediate access to assets in “locked-in” RRSPs or RRIFs;
• Income tax deductions of three or more times the amount invested in an RRSP.
• Unrealistic returns on investments – if it is too good to believe well, it is likely not to be believed.

Typically, promoters of these questionable schemes direct the owner of a self directed RRSP or RRIF to purchase a particular investment through a specific trustee. The particular investment could be shares in a company, units of participation in a co-operative, a mortgage or other types of investments.   If you are unsure at all about a RRSP offer you have received do not hesitate to contact your financial advisor about its validity.

Taxpayers should avoid these schemes for two reasons:

1. The full amount of any withdrawal or ineligible investment is included in the taxpayer's income in the year the investment was made or the withdrawal occurred. This means that taxes are assessed on these amounts, as well as any applicable interest. Penalties may also be levied for amounts not reported.
2. These arrangements can put their retirement savings at risk. In some cases, the promoter walks away with all the funds and cannot be found. Many Canadians have lost their entire retirement savings to unscrupulous promoters by participating in such arrangements.

These schemes are promoted to look legitimate.

The promotion of these schemes usually appears very professional and makes the schemes appear legitimate. Various promotional methods may be used, including the Internet, local newspaper advertisements and promotional meetings.

Promoters often provide opinion letters from professionals that give the impression the letter writer endorses the scheme. These letters should not be interpreted as providing any assurance that these schemes do what they claim to be doing or that the promised tax benefits are in accordance with the Income Tax Act.

Get professional, independent advice.

If you are thinking about investing in one of these arrangements, it's very important that you get independent legal and tax advice. Independent advice means advice from a tax professional that is not connected to the scheme or promoter.

If you encounter a questionable scheme, you can contact the CRA at 1-800-267-3100 (English) or 1-800-267-5565 (French).

Source: http://www.cra-arc.gc.ca/nwsrm/lrts/2009/l090317-eng.html