The federal government announced in the 2024 budget that it's looking at how to modernize the rules around which investments can be included in registered accounts.Pgiam/iStockPhoto / Getty Images
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The Department of Finance’s consultation on qualified investments within registered plans closed last month, and industry associations argued that crypto funds and annuities should remain on the government’s list of what’s allowed.
The review, announced in the 2024 federal budget with submissions closing on July 15, sought suggestions from stakeholders for how to modernize the rules around which investments can be included in registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs), tax-free savings accounts (TFSAs), registered education savings plans, registered disability savings plans (RDSPs), tax-free first home savings accounts and deferred profit-sharing plans.
The budget noted that the rules can be “inconsistent or difficult to understand,” with registered plans in some cases allowing different types of investments, and said the government would consider harmonizing the rules.
One issue under consideration is whether annuities – which can only be held in RRSPs, RRIFs and RDSPs – should continue to be qualified investments.
But the Canadian Life and Health Insurance Association Inc. (CLHIA) made the case that annuities be added as a qualified investment for TFSAs.
Noeline Simon, CLHIA’s vice-president of taxation, pension and reporting in Toronto, notes that Finance originally saw TFSAs as a savings solution for short-term needs as there are no penalties for withdrawals, unlike for RRSPs. Yet, given the wide range of investments permitted in TFSAs, including equities, Ms. Simon says many investors are using TFSAs as part of their retirement savings.
“Balances in TFSAs continue to grow and are being used increasingly as a source of savings to support retirement needs,” CLHIA’s submission to Finance states.
“However, the liquidity requirement of the TFSA rules prevents holding payout annuities within TFSAs. Canadian retirees or those approaching retirement should […] have the flexibility to secure their retirement through a guaranteed lifetime income from their funds in TFSAs if they feel it is appropriate for them.”
Finance questioned whether annuities should remain a qualified investment for registered plans due to the illiquid nature of the payout annuities. CHLIA says payout annuities should be “part of the retirement income solution along with the drawdown benefits from RRIFs” and adds that Canadians deserve the option to continue to purchase annuities in their RRSPs and RRIFs.
“The lack of readily available fair market value is irrelevant as [Canadians] cannot cash in an annuity,” Ms. Simon says. Annuities are illiquid as insurance companies have contracted to pay out a guaranteed sum for life.
She also says annuities provide an alternative solution for Canadians who lack adequate guaranteed income from other sources.
CHLIA also weighed in on Finance’s request to consider “whether and how” the qualified investment rules could promote Canadian-based investments. Ms. Simon says the government has better policy tools to promote investments in Canadian-based businesses, such as preferred tax rates for small businesses.
Ms. Simon adds Finance should not reintroduce foreign content limits on investments because of the administrative burden for providers and forcing more Canadian investments by force doesn’t serve retirees well.
“The better solution is to ensure Canadian business performance compares well and their risk-adjusted returns attract Canadians’ retirement dollars,” CHLIA’s submission states.
Finance also wanted feedback on whether cryptocurrency is an appropriate qualified investment. Currently, crypto funds are qualified investments, but not cryptocurrency in general.
Josée Baillargeon, senior policy advisor, taxation, at the Investment Funds Institute of Canada (IFIC) in Toronto, says crypto funds should remain eligible for registered plans.
“They are currently allowed and should continue to be allowed,” Ms. Baillargeon says, adding that crypto funds are a more secure option than holding cryptocurrency directly.
IFIC’s submission points out that crypto funds regulated by Canadian securities regulators rely on custodians and subcustodians to hold cryptocurrency on their behalf. It also notes that custodians have practices and policies to mitigate risks such as keeping crypto assets in offline storage, maintaining insurance and providing annual assurance reports prepared by public accountants. Currently, crypto funds are also only permitted to hold bitcoin and ether.
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