24 June 2002 External T.I. 2002-0146665 - WITHHOLDING ON RRSP CONTRIBUTIONS

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:

Can a contribution be made to a spousal RRSP when the amount is considered pension income that is in excess of a permitted transfer under Regulation 8517 and have no tax withheld on the remuneration?

Position: Yes

Reasons:

The excess amount is income included in recipient's income under 56(1)(a) and a contribution can be made to a spousal RRSP provided the individual has RRSP contribution room.

XXXXXXXXXX 							2002-014666
M. P. Baldwin, CA
June 24, 2002

Dear XXXXXXXXXX:

Re: Withholding on RRSP Contributions

This is in reply to your letter of June 5, 2002 in which you request a technical interpretation on whether certain pension payments can be made as a contribution to a spousal registered retirement savings plan ("RRSP").

Subsection 147.3(4) of the Income Tax Act (the "Act") permits the direct transfer of a single amount from a defined benefit registered pension plan ("RPP") to a money purchase RPP, an RRSP or a registered retirement income fund ("RRIF").

Interpretation Bulletin IT-528, entitled "Transfers of Funds Between Registered Plans" (which is available on the CCRA internet or at the local tax services office) provides the Agency's views concerning transfers. As noted in paragraph 15 of IT-528, a single amount may be transferred under subsection 147.3(4) of the Act where no portion of the amount relates to an actuarial surplus and the amount does not exceed a prescribed amount calculated in accordance with section 8517 of the Income Tax Regulations (the "Regulations").

The excess amount above the Regulation 8517 amount must be included in the recipient's income by virtue of paragraph 56(1)(a) of the Act and is subject to withholding tax in the year the amount is paid.

The Agency's position regarding the reduction of the amount of remuneration on which you have to deduct tax is found in the Employers' Guide to Payroll Deductions (Basic Information) 2001-2002 (which is available on the CCRA internet or at the local tax services office). As noted in Chapter 4 of this guide, you have to deduct income tax from the following types of remuneration: ... pensions, retiring allowances (also called severance pay), and death benefits.

Chapter 4 of this Guide also notes:

"As indicated earlier, a registered retirement savings plan (RRSP) contribution that you withhold from remuneration you pay an employee in a year automatically reduces the remuneration on which you have to deduct tax. However, you have to have reasonable grounds to believe that the contribution can be deducted by the employee for the year. This applies to an RRSP contribution you withhold from any taxable remuneration you pay an employee, regardless of the amount of the payment or whether it is paid periodically or in a lump sum. For example, it applies to remunerations such as ordinary salary and wages, bonus payments, cashed-out vacation or leave credits, and the eligible and non-eligible parts of a retiring allowance. You can find a detailed list of types of remuneration in the section called "Remuneration subject to tax at source" earlier in this chapter.

The employees cannot receive the amounts and then purchase an RRSP themselves. The contributions have to be transferred by the employer directly to the employee's RRSP or to his or her spouse or common-law partner's RRSP, (except for the eligible part of a retiring allowance that has to be transferred only the employee's RRSP).

Generally, we consider you have reasonable grounds to believe your employee can deduct the contributions if you have a confirmation by the employee that the contribution can be deducted for the year, or a copy of his or her deduction limit statement that is part of the Notice of Assessment."

Consequently, based on the above, when an employee has pension income included as remuneration, the employee can use this remuneration as a contribution to a spousal RRSP, provided the employee meets the requirements of subsection 146(5) or (5.1) of the Act, as applicable, and the employee has RRSP contribution room available. If the above conditions as noted in Chapter 4 of the Employers' Guide to Payroll Deductions are met, the employer does not need to withhold tax on this taxable remuneration that is contributed to the RRSP.

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

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch