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: Memorandum to Headquarters - Appeals Branch to clarify our position with respect to status Indians making registered retirement savings plan ("RRSP").
Position: In a situation where a status Indian contributes to an RRSP based on tax-exempt income, such that the contributions are not deductible, in our view, withdrawals of the principal would be tax-exempt. However, the withdrawal of any investment earnings should be taxed similarly to ordinary investment income.
However, in situations where the status Indian technically has "earned income" room, and payments from an RRSP (whether principal or income) relate to income that was exempt from tax, the payments will usually be exempt from tax since the contributions would have related to income that was accorded tax-exempt treatment by a remission order or to tax-exempt income.
April 28, 2000
Don Beamish, Manager HEADQUARTERS
Headquarters - Appeals Branch Karen Power, CA
Income Tax Appeals (613) 957-8953
Attention: Alex Lowe
2000-001268
RRSPs of Status Indians
The purpose of this memorandum is to clarify our position with respect to status Indians making registered retirement savings plan ("RRSP") contributions.
In our view, income that is exempt from taxation pursuant to paragraph 81(1)(a) of the Income Tax Act (the "Act") and section 87 of the Indian Act is not to be included in the calculation of "earned income" as defined in subsection 146(1) of the Act. Accordingly, a contribution to an RRSP cannot be deducted unless there is "earned income" as defined in subsection 146(1) of the Act. Income that is tax-exempt does not generate "earned income", as it is excluded from income by virtue of paragraph 81(1)(a) of the Act. Consequently, where a contribution to an RRSP relates solely to an Indian's tax-exempt income (i.e., the Indian has no "earned income"), the contribution cannot be deducted.
In a situation where a status Indian contributes to an RRSP based on tax-exempt income, such that the contributions are not deductible, in our view, withdrawals of the principal would be tax-exempt. However, the withdrawal of any investment earnings should be taxed similarly to ordinary investment income.
Based on the case of Arnold Recalma v. The Queen, 96 DTC 1520, 98 DTC 6238, it is necessary to determine the location of the issuer's income generating activity of the investment instrument. In our view, the income stream from investments held within an RRSP, whether the issuer is located on or off reserve, will not be connected to a reserve. As such income will generally be generated off the reserve, it would be considered to be earned in the normal economic mainstream and, accordingly, not considered personal property situated on a reserve. In our view, unless the income can be identified as exclusively generated on the reserve, the income is not exempt from tax.
However, formerly when a remission order applied to remit a status Indian's taxes otherwise payable on employment income, he or she would technically have had "earned income" and would have been entitled to contribute to an RRSP. In other instances, the amounts in an RRSP relate to amounts transferred from an RPP which in turn related to tax-exempt employment income. In such situations, the Agency's position is that payments (principal and investment income) from these RRSPs will usually be exempt from tax. If only a portion of the payments relate to income that was exempt, then the exemption will be prorated. This position is the same as the position for RPP benefits reflected in the Indian Act Exemption for Employment Income Guidelines issued in June, 1994.
Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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