7 June 2002 External T.I. 2002-0138605 - RPP UNDEDUCTED CONTRIB. BANK CHARGES

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:

1. Can bank charges be deducted in computing income from a pension plan?

2. Are non-deductible RPP contributions received tax-free from an RPP?

Position:

1. No.

2. Generally not.

Reasons:

1. There is no provision that allows for the deduction.

2. Unless the amount is exempted under a tax treaty, the general comments in paragraph 11 of IT-167R6 would apply.

XXXXXXXXXX 2002-014062
2002-013860
M. P. Sarazin, CA
June 7, 2002

Dear XXXXXXXXXX:

Re: Taxation of Amounts Received from a Registered Pension Plan

This is in reply to your facsimile of May 3, 2002 and your e-mails of May 9 and May 28, 2002, requesting our views regarding the taxation of amounts that you have received from a Registered Pension Plan ("RPP") and the deductibility of amounts previously contributed to the RPP during a period when your employment income was exempt from taxes under the Income Tax Act (the "Act"). You also ask whether our response would differ if the RPP was revocable.

Comments

In your letter you have outlined an actual fact situation related to completed transactions. As noted in Information Circular 70-6R4, this Directorate can only provide advance income tax rulings in respect of specific proposed transactions. We must advise you that the review of completed transactions falls within the responsibility of your local tax services office. Information Circulars and Interpretation Bulletins referred to herein are available at your local tax services office or on the internet at www.ccra-adrc.gc.ca/formspubs/menu-e.html. Consequently, we can only provide you with the following general comments.

Canadian residents are generally required to include in their income all amounts received from an RPP as a "superannuation or pension benefit" pursuant to subparagraph 56(1)(a) of the Act. These amounts are included in income regardless of whether the payments are made inside or outside of Canada. The amount paid out of the RPP is the amount that the recipient must include in his or her income under subparagraph 56(1)(a) of the Act. Consequently, bank charges incurred by you in respect of the transfer and deposit of your RPP income are considered personal expenses and are not deductible in computing your income under the Act.

The Canada Customs and Revenue Agency's general views regarding the deductibility of contributions to RPPs are found in Interpretation Bulletin IT-167R6 entitled "Registered Pension Plans - Employee's Contributions". Please note that paragraph 11 of this Interpretation Bulletin deals with the general taxation of non-deductible amounts contributed to RPPs. However, you state that your RPP income is received from a registered pension plan that is resident in the U.S. If this is in fact the case, the Canada-U.S. Income Tax Convention (the "Convention") may apply to exempt the non-deductible amounts from taxation in Canada.

Pursuant to paragraph 1 of Article XVIII of the Convention, Canada maintains its right to tax pension income arising in the U.S. and paid to a resident of Canada to the extent such income would have been subject to tax in the United States had the recipient been a resident of the United States. Where an amount paid out of a U.S. RPP to a U.S. resident would not be subject to income taxes in the U.S., the same payment from the U.S. RPP to a resident of Canada would be eligible for a deduction under subparagraph 110(1)(f)(i) of the Act. Consequently, a return of non-deductible contributions to a Canadian resident by a U.S. RPP may not be taxed in Canada as a result of an income inclusion being offset by an allowable deduction. This determination is a question of fact.

Your RPP administrator should be able to advise you as to whether your non-deductible pension contributions would be exempt from tax in the United States if such amounts were paid to a resident of the United States. If such non-deductible amounts are not taxable in the U.S., you may be eligible to claim a deduction under subparagraph 110(1)(f)(i) of the Act in respect of the portion of your RPP income that represents the non-deductible pension contributions to the RPP. Once you get the facts, you can discuss your eligibility for the deduction under subparagraph 110(1)(f)(i) of the Act with the appropriate person at your local tax services office.

We note that the fact that your specific RPP may or may not be revocable would not change any of the comments provided above. In any case, the determination of whether a specific RPP is revocable or not is the responsibility of the Registered Plans Division of the Canada Customs and Revenue Agency.

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

Yours truly,

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