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: Is an RRSP issuer required to withhold and remit tax when qualifying investments are sold, prior to the purchase of a non-qualifying investment by the RRSP trust?
Position: Question of fact.
Reasons: Subsection 153(1) requires tax to be withheld and remitted where an amount is paid out of or under an RRSP. In general, an exchange of property at fair market value involving property held inside an RRSP with property held outside an RRSP is a purchase/sale and not a premium paid/benefit received.
XXXXXXXXXX 2001-009712
G. Allen
October 3, 2001
Dear XXXXXXXXXX:
Re: Disposition of Qualified Investments and Withholding Tax
This letter is in reply to your letter dated August 8, 2001 concerning the disposition of qualified investments and the purchase of non-qualified investments within a registered retirement savings plan ("RRSP"). Specifically, you would like us to address whether the RRSP issuer would be required to withhold and remit tax when the qualifying investments are sold.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advanced income tax ruling request. For more information concerning advance tax rulings, please refer to Information Circular 70-6R4 dated January 29, 2001. Copies of information circulars are available at your local Tax Services Office or on the Internet at http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following general comments, which may be of assistance.
Your understanding of the application of subsections 146(10) and 146(6) of the Act where an RRSP trust acquires and disposes of a non-qualified investment is correct. Where a trust governed by an RRSP acquires a non-qualified investment in a taxation year, subsection 146(10) requires the annuitant of the RRSP to include the fair market value of the non-qualified investment in their income for the year. Where a trust governed by an RRSP disposes of property that was a non-qualified investment when acquired, subsection 146(6) permits the annuitant of the RRSP to deduct from their income for the year the lesser of, the amount included in income by virtue of subsection 146(10) and the proceeds of disposition of the property. In addition, the application of subsection 146(10.1) will result in the earnings for the year in respect of non-qualified investments held by the RRSP trust being subject to tax under Part I of the Act.
In general, where property held in an individual's RRSP is disposed of at fair market value and property held outside an individual's RRSP is acquired at fair market value, the acquisition/disposition will be considered a purchase and sale and not a premium paid to and benefit received out of an RRSP.
Subsection 153(1) of the Income Tax Act (the "Act") requires every person paying at any time in a taxation year a payment out of or under an RRSP to withhold the appropriate amount of tax and remit that amount to the Receiver General. The disposition of a qualified investment held within an RRSP may or may not result in a payment out of or under an RRSP. If as a result of the disposition of the qualified investment an amount is paid from the RRSP, then tax must be withheld.
We trust the above comments will be of assistance.
Yours truly,
Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
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