You’re being promised solid performance for your RRSPAn RRSP, or Registered Retirement Savings Plan, is a registered account (an account with a bank or on-line broker, for example) in which investments can be made, the returns on which are not taxable as long as the money stays in the RRSP.

Investors who make contributions to their RRSP can deduct an equivalent amount from their taxable income (subject to certain conditions) and, as a rule, pay less tax.

However, when amounts are withdrawn from an RRSP, they must be added to taxable income.

The main purpose of an RRSP is to accumulate savings for retirement.  
. The offer seems credible. Here is an example of fraud and information that can help you avoid being a victim.

The fraudster’s offer

  1. A relative’s friend or another trustworthy person is offering you a $50,000 RRSP investment opportunity that will earn you a high return. In fact, all you have to do is transfer the amount from your RRSP to another RRSP generating higher returns!
  2. It seems too good to be true. You’re hesitant. That’s when the offer gets even more attractive. The person is so confident about their “super” investment that they’re offering you an advance - $30,000 in cash - on future returns!
  3. They explain that your $50,000 RRSP is actually worth about $30,000 cash. The reason is that funds withdrawn from an RRSP are taxable. In your case, the taxes are about $20,000. Once you’ve paid the taxes on this withdrawal, you’ll have about $30,000 left. The fraudster explains there’s no risk: “In any case, had you withdrawn the money from your RRSP, you would have had to pay half in taxes.” With his offer, you won’t need to make any RRSP withdrawal.
  4. You decide to accept this offer, which sounds “too good to be true.”

What happens next...

  1. Your money will be “invested” in a company that’s worthless and then transferred to the fraudster. You’ll never be able to recover your $50,000. You console yourself by saying you have $30,000 in cash, but...
  2. You later learn that this super investment isn’t eligible under an RRSP. Even if you’re a victim of fraud, you might still have to pay taxes on the money withdrawn from your RRSP. After penalties and interest have been deducted, a large portion of your $30,000 will be gone. You’ll be left with almost nothing.

As for the fraudster, they’ve made a very good profit:

  • They collected your $50,000.
  • They paid you an advance of $30,000.
  • They made a profit of $20,000.

Be wary when people make significant promises. When something seems too good to be true, it usually is.

Warning

Don’t let anyone you don’t know meddle with your retirement savings!

This kind of fraud works with any type of tax-sheltered savings:

  • RRSPAn RRSP, or Registered Retirement Savings Plan, is a registered account (an account with a bank or on-line broker, for example) in which investments can be made, the returns on which are not taxable as long as the money stays in the RRSP.

    Investors who make contributions to their RRSP can deduct an equivalent amount from their taxable income (subject to certain conditions) and, as a rule, pay less tax.

    However, when amounts are withdrawn from an RRSP, they must be added to taxable income.

    The main purpose of an RRSP is to accumulate savings for retirement.  
  • Locked-in Retirement Account (LIRA)A Locked-In Retirement Account (LIRA) is generally used for investing money coming from a Supplemental Pension Plan (SPP). The income generated by the investments in a LIRA is not taxable as long as it remains in the LIRA. To move money out of a LIRA, it must either be transferred to a Life Income Fund (LIF) or used to buy a life annuity from an insurance company.
  • Pension planA pension plan is a mechanism that allows members to save money and invest it in order to receive income when they retire. Some pension plans group many people together. This is true with pension funds.

    Others are limited to a single member. This is the case with RRSPs. 
  • Other registered savings
End of the warning

Variations on this fraud

There are a number of variations on this fraud.

  1. For example, some fraudsters will tell you that you must first transfer your RRSP to an on-line dealer (discount brokerA discount broker is a broker who makes it possible to buy and sell securities (shares, etc.) at a lower price. In general, the broker does not offer clients any personalized advice.

    A discount broker often has a website that allows clients to carry out transactions on their own, without any human contact.  
    ). This type of dealer does not provide advice. The fraudsters will let you choose the dealer. You decide to do business with a very reputable dealer registered with the AMF. What are you risking?
  2. The fraudsters will then need to manage the investment. They’ll ask you for your passwords so they can access your accounts.
  3. The first chance they get, they’ll use your passwords to empty all of your accounts.
Warning

Be careful!

Some fraudsters are extremely skilled at winning their victims’ trust. If a relative’s friend makes you an offer that’s too good to be true... it probably is. Consider that your relative may also be a fraud victim.

End of the warning

A few rules to keep in mind

Before making an investment, check with the AMF to determine whether the person and firm offering a financial product are authorized to do so.

Follow the 5 steps to reduce the risk of being a victim of fraud.

Insight

Ask the right questions!

This concise practical guide will help you ask the right questions to detect fraudsters.

Soyez à votre affaire pour ne pas perdre vos affaires! (pdf - 4 MB)This link will open in a new window

End of the insight

Are you a victim of fraud? Report fraud!