2 March 2000 External T.I. 2000-0000155 - RCA PAYMENTS TO NON-RESIDENT

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: Are rights to benefits under an EPSP, an EBP or a FRA held by an individual who emigrates from Canada included in income under proposed paragraph 128.1(4)(b) of the Act?

Position: No for EPSP or EBP. Yes for FRA.

Reasons: EPSP and EBP rights are specifically excluded under the proposed subparagraph 128.1(4)(b)(iv).

XXXXXXXXXX 2000-000015
M. P. Sarazin
Attention: XXXXXXXXXX

March 2, 2000

Dear Sirs:

Re: Taxation of Foreign Plan to Resident and on Departure from Canada

This is in response to your letter dated January 4, 2000, wherein you requested our confirmation of your understanding of the application of the Income Tax Act (the "Act") in the situation where an individual, who has resided in Canada for more than 5 years, accrued benefits under a U.S. employee benefit plan or profit sharing plan while resident in the United States. You indicate that the individual may transfer the amount to an IRA while resident in Canada and may emigrate to the United States.

Comments

Confirmation of the tax consequences associated with completed transactions are provided by the relevant tax services office. Opinions concerning proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. For more information concerning advance tax rulings, please refer to Information Circular 70-6R3 dated December 30, 1996, issued by the Canada Customs and Revenue Agency (the "Agency"). Copies of Information Circulars and Interpretation Bulletins are available from your local tax services office or on the Internet at the following site - http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. However, we can provide you with the following general comments.

The determination of whether a plan or arrangement established by an employer would constitute an employee benefit plan ("EBP"), within the meaning assigned by subsection 248(1) of the Act, or an employees profit sharing plan ("EPSP"), within the meaning assigned by subsection 144(1) of the Act, is a question of fact. The Agency's general views regarding EBPs and EPSPs are found in Interpretation Bulletin IT-502 titled "Employee benefit plans and employee trusts" and Interpretation Bulletin IT-379 titled "Employees profit sharing plans - Allocations to beneficiaries". We note that U.S. profit sharing plans generally do not qualify as EPSPs because they do not satisfy the conditions of section 144 of the Act. However, this determination is a question of fact.

We provided our views regarding the tax consequences relating to a transfer from an EBP to an IRA in the situation you describe in our letter to you of February 18, 2000 (1999-001553).

Under proposed subparagraphs 128.1(4)(b)(iv) and (v) of the Act, an individual who emigrates from Canada is not deemed to have disposed of any rights to benefits under a plan, arrangement, or trust referred to in any of paragraphs 6(1)(d) (employee profit sharing plan under section 144 of the Act), 6(1)(g) (employee benefit plans other than certain EBPs not relevant to your situation), 6(1)(h) (an employee trust) or 6(1)(i) (salary deferral arrangement) of the Act. The determination of whether rights to a benefit under the particular foreign plan or arrangement would be excluded from the emigrant's income is a question of fact.

A Canadian resident individual may hold rights under a foreign retirement arrangement, within the meaning assigned by 248(1) of the Act. On emigration from Canada, we are of the view that the individual would be deemed to have disposed of the rights under the foreign retirement arrangement because it is property owned by the individual at the time of emigration and it does not meet any of the exclusions provided under proposed paragraph 128.1(4)(b) of the Act.

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

Yours truly,

Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy & Legislation Branch