19 November 2001 External T.I. 2001-0100105 - NISA-CORRECTION OF ERRORS

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

Whether NISA deemed deposits or withdrawals made in error can be reversed.

Position TAKEN:

General comments provided.

Reasons:

Question of fact.

Barbara Abramchuk
Administrative Policy Analyst
NISA Administration 2001-010010
P.O. Box 6100 T. Young, CA
Winnipeg MB R3C 3A4

November 19, 2001

Dear Ms. Abramchuk:

Re: Net Income Stabilization Account (NISA)

This is in reply to your letter of September 5, 2001, requesting further clarification of our opinion letter 5-991169 regarding the tax implications of changes to Deposit / Withdrawal options.

The NISA Program is designed to help farmers achieve long-term income stability on their farms. The program allows a participant to annually deposit money into an individual NISA account and receive matching contributions from the federal and participating provincial governments. The portion of the NISA account that holds the participant's deposits is referred to as Fund No. 1. The Fund No. 2 portion of the NISA account holds the government matching contributions and all accumulated interest on both Fund No. 1 and Fund No. 2.

Withdrawals from Fund No. 1 are non-taxable whereas, pursuant to subsection 12(10.2) of the Income Tax Act (the "Act"), withdrawals from Fund No. 2 are taxable, unless they were required to be included in income in the current or prior years under certain other provisions in the Act. Withdrawals from Fund No. 2 can either be paid to the participant or can be deposited directly by the NISA Administration into Fund No. 1 to enable the participant to receive the matching government contributions for the year. The latter process is referred to as a deemed deposit.

You have asked us if an amount is withdrawn from Fund No. 2 in error, can the NISA Administration reverse the transaction and the resulting tax implications.

Our Comments

In situations where amounts are withdrawn from Fund No. 2 in error, whether paid to the participant or used to make a deemed deposit, we would not object to reversing the transaction and adjusting or amending the AGR-1 information slip accordingly.

Whether a transaction has been made in error is a question of fact and can only be determined based on the specific facts of the situation. To that end, in situations where an error has been made by the participant's financial institution or by the NISA Administration, this determination is usually not difficult. On the other hand, it is generally more difficult to make that determination when the participant has actually requested the withdrawal or deemed deposit. In these situations, it must be ascertained whether the request was clearly made in error and that the participant has not merely changed his or her mind.

We trust our comments will be of assistance to you.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate

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