2 March 2000 External T.I. 2000-0003215 - RCA PART XIII

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Will payments from a Canadian RCA relating to foreign service provided by an employee while he was a non-resident be exempt from withholding taxes under 212(1)(h) of the Act?

Position: No.

Reasons: Paragraph 212(1)(j) applies to RCA payments made to a non-resident and there is no exclusion for benefits relating to services provided while the person was not resident in Canada.

XXXXXXXXXX 2000-000321
M. P. Sarazin
March 2, 2000

Dear Sir:

Re: Retirement Compensation Arrangement and a Non-Resident

This is in response to your facsimile dated January 19, 2000, wherein you requested confirmation that no withholding tax would be required under the Income Tax Act (the "Act") with respect to pension benefits under a retirement compensation arrangement paid to a non-resident person because the benefits relate to periods of service when the individual was neither resident nor employed in Canada. The person, a former employee of a Canadian employer, resides in a country with which Canada does not have a tax treaty. You have asked whether all or a part of the RCA payments will be exempt from withholding taxes under Part XIII of the Act because paragraph 212(1)(h) exempts pension payments that relate to services provided outside of Canada by a non-resident of Canada and the Income Tax Conventions Interpretations Act ("ITCIA") includes RCA payments in the definition of "pension".

Comments

In your letter you have outlined an actual fact situation related to completed transactions. As noted in Information Circular 70-6R3 (available at your local tax services office or on the internet at www.ccra-adrc.gc.ca/formspubs/menu-e.html), this directorate can only provide advance income tax rulings in respect of specific proposed transactions. We must advise you that the review of completed transactions falls within the responsibility of tax services offices which, in the case of non-residents, is the International Tax Services Office. Consequently, we can only provide you with the following general comments.

Under paragraph 212(1)(j) of the Act, payments out of an RCA to a non-resident are subject to tax under Part XIII of the Act. We note that there is no exemption for benefits relating to services provided outside of Canada by a non-resident of Canada. Since there is no income tax convention between Canada and the country in which the former employee resides, the ITCIA is irrelevant and he or she will not be entitled to any relief from the required withholding taxes.

Depending on the facts, the individual may want to consider electing under subsection 217(2) of the Act. In this regard, you may want to look at the Canada Customs and Revenue Agency's T1 Guide for Non-Residents and Deemed Residents available at the above-noted website.

We trust the above comments will be of assistance to you.

Yours truly,

Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy & Legislation Branch