CRA indicates that Reg. 8503(26) minimum amount payments or commutation payments are lump sums ineligible for reduction under Canada-U.S. Treaty

The U.S.-resident beneficiary of her deceased mother’s individual pension plan (IPP) received monthly benefits thereunder that were eligible for the 15% Treaty-reduced rate – but thereafter the IPP was wound up by virtue of having reached the end of a 10-year guarantee period. CRA rejected the taxpayer submission that the IPP winding-up distribution was “simply an extension of the periodic guarantee payments,” and found that, since it was a lump sum payment as referenced in the definition of “periodic pension payment” in s. 5 of the Income Tax Conventions Interpretation Act, it was subject to withholding at 25%.

CRA went on to gratuitously state:

[A]ny additional payment that an IPP may be required to make in a particular year to comply with the IPP minimum amount rules in [Reg.] 8503(26) … is not considered to be a periodic pension payment. … Similarly, a commutation payment made to a member or a beneficiary of a member in full or partial satisfaction of their entitlement to benefits under a defined benefit RPP is not a periodic pension payment.

Neal Armstrong. Summary of 12 September 2019 External T.I. 2017-0732681E5 under Treaties – Art. 18.