5 May 1995 External T.I. 9508265 - INDIAN ACT EXEMPTION RRSP WITHDRAWALS

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:

Is an RRSP premium withdrawal exempt if it relates to exempt income even though the RRSP was purchased from a bank located off reserve?

Position TAKEN:

Yes. When payments from an RRSP relate to income that was exempt from tax, the payments 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.

Reasons FOR POSITION TAKEN:

Based on the guidance provided in Williams, the Department recently reviewed its position on RRSPs. This position for RRSPs in the same as the position for RPPs, UIC benefits and CPP benefits.

									950826
XXXXXXXXXX							R. Albert

May 5, 1995

Dear XXXXXXXXXX:

Re: Registered Retirement Savings Plan ("RRSP") Withdrawals

We are writing in reply to your letter of March 11, 1995 concerning the withdrawal of funds from your RRSP's.

We understand that you are a status Indian who has worked on reserve in the past for Indian and Northern Affairs Canada. You have been on disability since XXXXXXXXXX. You have recently been made aware that the employment income which you earned while working on reserve was exempt and you will be requesting the Surrey Tax Centre to adjust your tax returns since 1985 as you have reported taxable income in those years. When you became disabled, some of your benefits were put into RRSP's for you. You question the tax status of the withdrawal of funds from your RRSP.

Our Comments

The decision of the Supreme Court of Canada in Williams 92 DTC 6320, (1992) 1 CTC 225, has required the Department to review its interpretation of the scope of the exemption from income taxation provided under the Indian Act. One general direction provided by the Supreme Court in Williams was that "an overly rigid test which identified one or two factors as having controlling force...would be open to manipulation and abuse." The approach adopted in Williams requires an examination of all factors connecting income to a reserve to determine if the income is located on the reserve.

Based on the guidance provided in Williams, the Department recently reviewed its position on RRSPs. As a result of our review, we are of the view that when payments from an RRSP relate to income that was exempt from tax, the payments will usually by 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 registered pension plan benefits, unemployment insurance benefits and Canada Pension Plan payments reflected in the Indian Act Exemption for Employment Income Guidelines issued in June, 1994 .

The facts of your particular situation will determine whether a portion or all of your RRSP benefits are exempt from taxation. As you will be contacting the Surrey Tax Centre concerning the tax status of your income in your previous tax returns, we suggest that you bring this issue to their attention at the same time. However, resolution of the tax status of your previous year's income is necessary before the RRSP issue can be resolved.

We trust that these comments will be of assistance.

Yours truly,

for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch