30 November 2000 External T.I. 2000-0054255 - RRSP PAYMENT TO US 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: Will an RRSP payment to a resident of the United States be subject to withholding taxes?

Position: Yes.

Reasons: Under paragraph 212(1)(l) of the Act, an RRSP payment to a resident of the United States is subject to tax under Part XIII of the Act.

XXXXXXXXXX 2000-005425
M. P. Sarazin
November 30, 2000

Dear Sirs:

Re: RRSP Payment to a Resident of the United States

This is in reply to your facsimile of November 2, 2000, requesting confirmation that a payment out of a registered retirement savings plan (RRSP) to a resident of the United States would be subjected to withholding taxes in Canada. You would also like us to confirm that the annuitant of the RRSP is not able to direct the acquisition and disposition of investments by the RRSP from the United States.

Comments

In your letter you have outlined what is an actual fact situation related to proposed transactions. As noted in Information Circular 70-6R3 (available at your local tax services office or on the internet at www.ccra-adrc.gc.ca/formspubs/menu-e.html), this directorate can only provide an opinion concerning the tax consequences associated with specific proposed transactions in the form of an advance income tax ruling. Consequently, we can only provide you with the following general comments.

Under paragraph 212(1)(l) of the Income Tax Act (the "Act"), a payment out of a RRSP to a non-resident person is subject to a 25% tax under Part XIII of the Act. Where a U.S. resident requests a lump-sum withdrawal from his or her RRSP, paragraph 2(a) of Article XVIII of the Canada - U.S. Income Tax Convention (the "Convention") does not provide for a reduction in the withholding tax rate and consequently the withholding tax rate remains at 25% of any payment pursuant to subsection 212(1) of the Act. We note that, where a RRSP payment made to a resident of the United States is a periodic pension payment, the RRSP payment would be subject to tax at the reduced rate of 15% pursuant to paragraph 2(a) of Article XVIII of the Convention.

Your client's investment advisers have advised your client that American securities

regulations prohibit non-registered firms and individuals from dealing in investment products with U.S. residents. This has resulted in your client not being able to acquire or dispose of any properties held in his or her RRSP. Since your client's problem is caused by the application of securities regulations and not by any restrictions contained within the Act, your client should be discussing these restrictions with his or her investment advisors. We note that at least one recent article written by a U.S. security advisor indicates that these regulations are being lifted and it is anticipated that RRSPs will be able to acquire and dispose of properties as per your client's wishes. However, confirmation of whether or not the lifting of the American securities regulations is forthcoming should be discussed with your client's investment advisors.

We trust that our comments will be of assistance.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate