Canadian industry associations are advocating for the inclusion of annuities in TFSAs and the continued acceptance of crypto funds in registered plans. Their arguments follow a consultation by the Finance Department on qualified investments.
Introduction As Canada modernizes the regulations governing registered accounts, industry associations are making a strong case for the continued inclusion of crypto funds and the expansion of annuities as qualified investments. This push follows a consultation by the Department of Finance, which sought input on how to update the list of investments allowed in registered retirement and savings plans.
Consultation on Modernizing Registered Accounts In a move to refine the investment landscape within registered accounts, the Finance Department closed its consultation on qualified investments last month. The review, initiated in the 2024 federal budget, invited stakeholders to propose updates for a range of accounts, including Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), Tax-Free Savings Accounts (TFSAs), and others. The consultation aimed to address the “inconsistent or difficult to understand” rules that currently govern these plans, with a focus on harmonizing the regulations across different account types.
Annuities as a Qualified Investment A key point of contention is whether annuities should remain a qualified investment, especially given their limited liquidity. Presently, annuities are permitted in RRSPs, RRIFs, and Registered Disability Savings Plans (RDSPs), but their inclusion in TFSAs is under debate. The Canadian Life and Health Insurance Association Inc. (CLHIA) has strongly advocated for expanding the availability of annuities to TFSAs, citing the growing use of these accounts for retirement savings.
Noeline Simon, CLHIA’s vice-president of taxation, pension, and reporting, argues that TFSAs, initially designed for short-term savings, have evolved into a significant component of many Canadians’ retirement planning. “Balances in TFSAs continue to grow and are being used increasingly as a source of savings to support retirement needs,” CLHIA stated in its submission. The association contends that the current liquidity requirements of TFSAs, which prevent holding payout annuities, are outdated. CLHIA believes that retirees should have the flexibility to secure guaranteed lifetime income from their TFSA funds.
Finance officials have questioned the appropriateness of annuities as a qualified investment, citing their illiquid nature. However, CLHIA maintains that the lack of readily available fair market value for annuities is irrelevant since these instruments are designed to provide a lifetime income. Simon emphasizes that annuities offer a crucial solution for Canadians who may not have adequate guaranteed income from other sources.
Crypto Funds in Registered Plans The consultation also examined whether cryptocurrency should be considered an appropriate investment within registered plans. Currently, crypto funds are allowed, but individual cryptocurrencies are not. The Investment Funds Institute of Canada (IFIC) has advocated for the continued inclusion of crypto funds as qualified investments, emphasizing their relative security compared to holding cryptocurrencies directly.
Josée Baillargeon, senior policy adviser on taxation at IFIC, argues that crypto funds should remain eligible for registered plans, noting that they are already regulated by Canadian securities authorities. “They are currently allowed and should continue to be allowed,” Baillargeon asserted. IFIC’s submission highlighted that crypto funds rely on custodians and sub-custodians to securely hold cryptocurrency assets, with safeguards such as offline storage, insurance, and annual assurance reports from public accountants. Currently, these funds are limited to holding only bitcoin and ether.
Promoting Canadian Investments Another aspect of the consultation involved exploring how the qualified investment rules could promote Canadian-based investments. While some have suggested reintroducing foreign content limits, CLHIA has cautioned against such measures, arguing that they could impose an unnecessary administrative burden on providers. Instead, the association recommends that the government focus on enhancing the performance of Canadian businesses to attract retirement dollars naturally, rather than through restrictive mandates.
Conclusion The outcome of the Finance Department’s consultation will have significant implications for the future of retirement and savings planning in Canada. As the government considers these proposals, the voices of industry leaders advocating for the inclusion of annuities in TFSAs and the continued acceptance of crypto funds will play a critical role in shaping the landscape of qualified investments within registered accounts.
