13 February 2001 Internal T.I. 2001-0066407 - DPSP, lump-sum, Part XIII

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 single withdrawal of $XXXXXXXXXX from a DPSP where the non-resident individual leaves balance of approximately $XXXXXXXXXX in the DPSP qualify under paragraph 1 of Article XVII of the Canada-U.K. Income Tax Convention (1978)?

Position: No.

Reasons:

We have previously taken the position that such an amount would constitute a payment in settlement of all future entitlements in respect of the $XXXXXXXXXX and, as such, would not meet the definition of pension in paragraph 3 of Article XVII of the Convention.

		February 12, 2001

	      OTTAWA TAX SERVICES OFFICE	HEADQUARTERS
      Elizabeth Crouse 	Income Tax Rulings
      Appeals Division	  Directorate
M. P. Sarazin
		824-5441

		2001-006640

DPSP Payment and Canada-U.K. Income Tax Convention (1978)

We are writing to you in response to your memorandum of January 18, 2001, requesting our views as to whether a $XXXXXXXXXX payment out of a deferred profit sharing plan ("DPSP") to a resident of the U.K. should have been subjected to tax under paragraph 212(1)(m) of the Income Tax Act (the "Act").

An individual retired XXXXXXXXXX and moved to the U.K. On XXXXXXXXXX (subsequent to becoming a non-resident), the individual withdrew $XXXXXXXXXX from his employer's DPSP. At the time of withdrawal, the individual still had rights to $XXXXXXXXXX under the DPSP which was left in the DPSP to augment the individual's monthly pension. The $XXXXXXXXXX DPSP withdrawal was subjected to withholding taxes of $XXXXXXXXXX under paragraph 212(1)(m) of the Act. The taxpayer applied for a waiver from the withholding taxes on the basis that the $XXXXXXXXXX DPSP payment constituted a pension payment and it was not taxable under paragraph 1 of Article XVII of the Canada-U.K. Income Tax Convention (1978) (the "Convention"). The individual argued that the $XXXXXXXXXX qualified under paragraph 1 of Article XVII of the Convention because it did not represent a payment under a superannuation, pension or retirement plan in settlement of all future entitlements under the DPSP. The individual referred to the rights to the remaining $XXXXXXXXXX under the DPSP to support his position.

The taxpayer's waiver of withholding taxes was denied because the payment was considered to be an amount paid in full settlement of future entitlements in respect of that amount held by the DPSP.

Comments

In our opinion, the lump-sum withdrawal of $XXXXXXXXXX from the DPSP represents a settlement of all future entitlements in respect of the $XXXXXXXXXX previously held in the DPSP as contemplated by paragraph 3 of Article XVII of the Convention, and is, therefore, not a "pension" for purposes of paragraph 1 of Article XVII of the Convention. We note that this position is consistent with previous opinions that we have supplied to the International Tax Services Office with respect to the application of Article XVII of the Convention.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Canada Customs and Revenue Agency's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version, or they may request a copy severed using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.

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