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Tax-Free Access to RRSP Investments: Too Good to be True?

A registered retirement savings plan (an “RRSP”) is a great way to save for retirement. A beneficiary of one of these plans, called an “annuitant”, can reduce their taxable income by making RRSP contributions. These contributions can then grow within the RRSP on a tax-deferred basis, with tax generally becoming payable only when payments are made out of the plan.  

The money and other investments sitting in an RRSP create a tempting target for promoters of tax schemes. For a fee, these promoters will often promise to “unlock” or “strip” an RRSP, and give the annuitant tax-free access to the investments within. Alternatively, they may promise to increase the annuitant’s tax-deferred income by allowing them to transfer value into their plan in excess of their RRSP contribution limit.  

Not only do these schemes present a good opportunity for a fraudster to steal the investments in the RRSP, annuitants are also punitively taxed under the Income Tax Act for their involvement. These penalty taxes, which are described below, are designed to leave annuitants worse off than they would otherwise be if they had avoided the scheme. 


RRSP schemes are generally prohibited by the concept of an “advantage”. If an annuitant, or a closely connected person, receives an advantage because of their RRSP, then the full value of the advantage is forfeited to the government, becoming payable as tax by the annuitant.[1]   

An “advantage” is very broadly defined.[2] With exceptions for normal commercial or investment activities, this term includes any benefit, loan, or indebtedness connected to an RRSP, or any increase in value of the contents of an RRSP.  

The increase in value of any property that an annuitant transfers into an RRSP as part of a “swap transaction” is also considered to be an advantage. A swap transaction is defined to include any transfer of property between an RRSP and its annuitant (or a non-arm’s length person), except for permitted transactions such as contributions to the RRSP, distributions from the RRSP, and transfers from the RRSP to another RRSP or to a registered retirement income fund (RRIF).[3]  

In addition, an advantage includes any “registered plan strip”. This penalizes any tax scheme that attempts to remove or devalue the investments in an RRSP for the purpose of benefitting the annuitant, or a closely connected person, without the benefit being included in any person’s income.[4] 

Prohibited and Non-Qualified Investments 

Even if a given transaction does not give rise to an advantage, punitive tax consequences can occur if an RRSP acquires a “prohibited investment” or a “non-qualified investment”.[5]   

A prohibited investment is an investment that is closely connected to the annuitant. A non-qualified investment is any investment that is not a “qualified investment” as defined under the Income Tax Act. Shares of a corporation that does not carry on an active business are one example of a non-qualified investment.  

If either a prohibited investment or a non-qualified investment is made, half of the value of that investment is payable as tax by the annuitant.[6]  

On top of this, any income generated by either of these types of investments, and any capital gain generated by a prohibited investment, is considered to be an advantage by default, and these amounts are therefore fully payable as tax by the annuitant.[7]  

Inadequate Consideration 

A penalty tax also applies where an investment in an RRSP is acquired for more than fair market value, or disposed of for less than fair market value. In these circumstances, the difference in price from the fair market value is included in the annuitant’s income.[8]  

Security for a Loan 

In addition to the above rules, if any of the investments in an RRSP are used as security for a loan, then the value of that property is fully included in the annuitant’s taxable income for that year.[9]  

Penalty Still Applies if Defrauded 

These rules can be particularly punitive, as they apply even if the promoter of the scheme defrauds the annuitant and takes off with the value of the RRSP.   

The cases of Gorman v R and Baker v R show that annuitants are liable to pay taxes for manipulating their RRSPs, even if the RRSP was drained by the fraudster who manipulated the plan. The annuitant in Gorman was even required to pay a penalty tax for failing to report the value of her drained plan’s improper investments as income.[10] 


The rules against RRSP schemes are broadly applicable and strictly applied, and the taxes under these rules can eat away at the savings of annuitants who participate in them. If a promoter offers to “unlock” your RRSP in a way that seems too good to be true, then it probably is.  

This article was written by member of the Tax Law Team at McKenzie Lake. If you require assistance with a Tax Law matter or wish to speak to a lawyer at McKenzie Lake Lawyers LLP, please call (519) 672-5666.

[1] Income Tax Act, s 207.05(1).  

[2] Income Tax Act, s 207.01(1) “advantage”.  

[3] Income Tax Act, s 207.01(1) “swap transaction”. 

[4] Income Tax Act, s 207.01(1) “registered plan strip”. 

[5] Both terms are defined in the Income Tax Act, s 207.01(1). 

[6] Income Tax Act, s 207.04.  

[7] Income Tax Act, s 207.01(1) “advantage”, s 207.05. 

[8] Income Tax Act, s 146(9). 

[9] Income Tax Act, s 146(10). 

[10] Gorman v R, 2016 TCC 153 at 53-54.