6 February 2002 External T.I. 2001-0118735 - WITHDR. FROM SPOUSAL RRSP BY STATUS INDIAN

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 CCRA.

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

Principal Issues: Whether withdrawals from a spousal RRSP by a status Indian would be taxable when they relate to contributions made by an individual who is not a status Indian.

Position: Withdrawals will be taxable.

Reasons: Since the withdrawals from the spousal RRSP relate to contributions made by an individual who is not status Indian, the withdrawals would not be connected to a reserve and would be taxable.

2001-011873
XXXXXXXXXX Karen Power, CA
(613) 957-8953
February 6, 2002

Dear XXXXXXXXXX:

Re: Withdrawals From Spousal RRSPs by Status Indians

We are writing in reply to your facsimile of September 18, 2001, which was forwarded to us by Mark Plaumier, requesting our views on whether withdrawals from a spousal registered retirement savings plan ("RRSP") by a status Indian would be exempt from taxation. In the situation you describe, we understand that the contributor to the spousal RRSP is not a status Indian.

Our Comments

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R4 entitled Advanced Income Tax Rulings, dated January 29, 2001. Where the particular transactions are completed, the enquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the Canada Customs and Revenue Agency.

Beginning with the 2001 taxation year the terms "common-law partner" and "common-law partnership" have generally been added throughout the Income Tax Act (the "Act") wherever the word "spouse" and its extensions (e.g., spouses, spousal) are found. Consequently, the provisions of the Act which were formerly restricted to a "spouse" and "spouses" (i.e., legally married persons) have been extended to persons who cohabit in a conjugal relationship for a continuous period of at least one year, including unmarried same-sex couples. The following comments will apply equally to married or common-law situations.

In general terms, it is section 87 of the Indian Act, along with paragraph 81(1)(a) of the Act, which establishes the exemption from taxation for status Indians. Generally, withdrawals of principal from an RRSP that relate to contributions made by a status Indian from income that is exempt from tax pursuant to paragraph 81(1)(a) of the Act would be tax-exempt. However, the withdrawal of any investment earnings would be taxable similarly to any ordinary investment income.

The term "spousal or common-law partner plan" is defined in subsection 146(1) of the Act. An RRSP is a spousal or common-law partner plan if the spouse or common-law partner of the annuitant has paid a premium under the plan, or if the RRSP has received a payment or transfer of property from another spousal or common-law partner plan. The taxation of withdrawals from a spousal or common-law partner plan is dependant on the taxation of the contributor and not on the taxation of the annuitant. In our view, the fact that an annuitant of a spousal RRSP is a status Indian would bear no relevance on the taxation of any withdrawals from the plan.

A non-status Indian individual does not qualify for exemption from taxation under the Indian Act. Consequently, where withdrawals from a spousal RRSP, relate to contributions made by an individual who is not a status Indian, the withdrawals (both principle and earnings) will be taxable. If amounts are withdrawn by the spouse (status Indian) in a taxation year in which the non-status Indian individual made contributions to the spousal RRSP, or in the following two years, the amounts will be taxable in the non-status Indian individual's hands to the extent provided in subsection 146(8.3) of the Act. If, after this period, the spouse (status Indian) withdraws amounts that relate to contributions made by the non-status Indian individual, such amounts will be taxable in the spouse's hands by virtue subsection 146(8) of the Act.

If the contributor has made an excess contribution to a spousal RRSP, the contributor may be subject to Part X.1 tax for the time the excess contribution remained in the RRSP. For excess contributions made after 1990, the tax payable by a taxpayer under subsection 204.1(2.1) for any month after December 1990 is equal to 1% of the taxpayer's "cumulative excess amount" at the end of the month. The term "cumulative excess amount" is defined in subsection 204.2(1.1). Even where the annuitant under the spousal RRSP is a status Indian, the penalty tax will apply to the contributor.

We trust our comments will be of assistance to you. These comments are provided in accordance with the practice outlined in paragraph 22 of Information Circular 70-6R4.

Yours truly,

Mickey Sarazin, CA
Manager, Aboriginal Affairs Section
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

cc. Marc Piaumier

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