While investors can hold foreign currency as well as Canadian dollars in an RRSP, rare coins and other forms of money held for collectible value are not qualified investments.designer491/iStockPhoto / Getty Images
Canadians may be surprised to know they can hold unusual or niche investments in their registered retirement savings plans (RRSPs) beyond the most common asset types: publicly traded shares, bonds and guaranteed investment certificates.
The “qualified investment rules” that govern which assets can be held in RRSPs (and other registered plans) allow Canadians to hold private company shares, precious metals, mortgages and annuities in their RRSP, but only if certain strict conditions are met.
With public equities, for example, shares must be listed on “designated” exchanges (the Department of Finance publishes a list). And while investors can hold foreign currency as well as Canadian dollars in an RRSP, rare coins and other forms of money held for collectible value are not qualified investments.
Failure to meet these conditions could lead to harsh tax penalties associated with holding “non-qualified” or “prohibited” investments in an RRSP.
Here are some investments that are allowed and not allowed in the plans:
Mortgages, including a mortgage on one’s own property in Canada (as long as it’s administered by an approved lender and insured by the Canada Mortgage and Housing Corp. or a private insurer), are qualified investments. The rate and terms on the mortgage must reflect normal commercial practices, and the mortgage must be administered in the same way as a mortgage on property owned by a stranger would be.
Mortgage payments to the RRSP are not new contributions to the plan, and interest payments are not tax-deductible.
While holding one’s own mortgage in an RRSP is possible, there are likely significant administrative costs and it may be difficult to find a financial institution that will facilitate the transaction.
Private company shares are allowed if the RRSP owner and related individuals don’t hold a significant interest (more than 10 per cent) in the company, and if more than 90 per cent of the company’s assets are used in an active business (as opposed to being invested passively) in Canada.
Aurele Courcelles, vice-president, tax and estate planning with IG Wealth Management Inc. in Winnipeg, says he’s “never been a big fan” of holding private corporation shares inside an RRSP as they are illiquid, hard to value and subject to the strict qualified investment rules.
In addition, the RRSP holder can’t claim the lifetime capital gains exemption on the sale of the private company shares if there’s a gain, and also can’t claim the capital loss if there is a loss, Mr. Courcelles says.
Gold and silver coins produced by the Royal Canadian Mint meeting minimum purity requirements (99.5 per cent for gold, 99.9 per cent for silver) are qualified investments. They must be purchased directly from the Mint or a Canadian financial institution.
It’s also possible to own pure gold or silver bars directly in an RRSP if produced by a refiner accredited by the London Bullion Market Association and purchased from the refiner or a Canadian financial institution.
Annuities are allowed if the annuity contract is purchased from a financial institution licensed to sell annuities. Annuity payments must be paid to the plan, not the owner of the RRSP, to be a qualified investment.
A person might choose to hold an annuity contract in their RRSP to provide a guaranteed stream of income to their plan, Mr. Courcelles says, although most clients choose to hold guaranteed investment certificates or bonds in their RRSP instead.
It’s also possible, of course, to convert the RRSP itself to an annuity, with taxable payments to the individual.
Alternative assets: Clients can get exposure to alternative assets through a mutual fund, exchange-traded fund, real estate investment trust or other financial instrument that invests in these assets.
It’s possible to get exposure to alternative assets in an RRSP in this way because the investor doesn’t own the underlying assets. Instead, they own the units of the mutual fund trust or shares of the mutual fund corporation that invests in those assets.
So, while cryptocurrency or land owned directly are not qualified investments, a bitcoin ETF or a fund that invests in a portfolio of real estate, land and rental properties are.
Penalties for ‘non-qualified’ investments
RRSPs that hold a “non-qualified” investment are subject to a 50-per-cent tax on the value of the investment. The tax may be refundable under certain circumstances. Any income or gains realized on the investment are also taxable at the highest marginal rate.
RRSPs that hold “prohibited investments,” which are those in which the investor and any related party hold a significant interest, are also hit with a 50-per-cent tax (potentially refundable), and the RRSP holder is subject to a 100-per-cent “advantage tax” on any income or gains generated from the investment.
Budget 2025 Changes
The qualified investment rules are substantially the same across all registered plans, but there are differences that can make navigating them complex.
To simplify the rules, the government proposed consolidating the qualified investment rules for all plans (except for deferred profit-sharing plans) into one definition in the Income Tax Act in the 2025 federal budget.
The government also proposed updating the list of qualified investments in the Income Tax Regulations, reorganizing them by asset class. These proposals were released in draft legislation for consultation in January. The consultation period ends Feb. 27.