16 November 1999 External T.I. 9927945 - RPP, NON-DEDUCTIBLE CONTRIBUTIONS

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 a portion of an annuity or RRIF that relates to non-deductible contributions to an RPP, in respect of services performed in the U.S. while a resident of the U.S., be considered a non-taxable return of such non-deductible contributions?

Position: No.

Reasons: There is no provision in the Act or Regulations that provide for such treatment.

XXXXXXXXXX 992794
M. P. Sarazin
November 16, 1999

Dear Sir:

Re: Non-Deductible Contributions to a Registered Pension Plan ("RPP")

This is in response to the walk-in meeting you held on October 20, 1999 with Ken Major from the International Section and Patricia Spice from the Deferred Income Plans Section of the Income Tax Rulings & Interpretations Directorate of the Canada Customs and Revenue Agency (the "Agency").

Our understanding of the facts is as follows:

1. You were employed and resided in Canada until XXXXXXXXXX. In XXXXXXXXXX, you were transferred to a related company (the "New Employer") in XXXXXXXXXX. You became a resident of the United States.

2. Before leaving Canada, you arranged to continue your participation in your Canadian employer's (the "Former Employer") RPP. It was presumed that you would return to the Former Employer after the completion of a year with the New Employer.

3. You worked for the New Employer until your retirement in XXXXXXXXXX. From XXXXXXXXXX to XXXXXXXXXX, you and the New Employer contributed to the RPP and neither of you claimed any deduction for your contributions.

4. On retirement, your pension entitlements under the RPP were transferred to a locked-in registered retirement savings plan ("RRSP") and then to a registered retirement income fund or eligible annuity (hereinafter referred to as the "RRIF"). Each of the transfers were in accordance with the Income Tax Act (Canada) (the "Act").

5. In XXXXXXXXXX, you moved back to Canada and became a Canadian resident.

You are of the view that the benefits received from the RRIF that relate to the non-deductible contributions that you made to the RPP from XXXXXXXXXX to XXXXXXXXXX should not be taxable.

Comments

In our meeting you outlined an actual fact situation related to completed transactions. We must advise you that the review of such transactions falls within the responsibility of Tax Services Offices. However, we can provide you with the following general comments.

The Agency's general position in respect of non-deductible contributions to an RPP can be found in paragraph 11 of the enclosed Interpretation Bulletin IT-167R6 titled "Registered Pension Plans - Employee's Contributions". It states:

"Generally, any amount received out of or under an RPP must be included in income even though an amount contributed to the plan may not have been deductible because it was in excess of the allowable deductions described above."

It is clear that the amounts withdrawn from an RPP are included in the recipient's income whether or not the contributions to the RPP were deducted by the recipient. We also note that there is no provision in the Act that would provide for the tax-free withdrawal of non-deducted contributions to an RPP after the amounts held in the RPP are transferred to an RRSP, RRIF or annuity in accordance with the Act. Consequently, the full amount received from the RRIF or eligible annuity would be taxable in the hands of the recipient.

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

Yours truly,

Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate