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:
Where an RRSP disposes of a share of a LSVCC to distribute property to its annuitant and the disposition is subjected to taxes under Part XII.5, will the net amount (after the taxes under Part XII.5) distributed by the RRSP to the annuitant have to be reported on a T4RSP?
Position: Yes.
Reasons:
Under subsection 146(8) of the Act, the amount received by the annuitant has to be reported as a benefit received out of or under the RRSP. Since the RRSP is subject to Part XII.5 taxes, the taxes are not received as a benefit by the annuitant so it can't be reported on the T4RSP.
May 15, 2003
SAINT JOHN TSO HEADQUARTERS
Louise McShane Aboriginal Affairs and
Client Services Division Non-Profit Section
(613) 957-8953
2003-001416
T4RSP and Early Redemption of LSVCC Shares
This is in reply to your memorandum of April 17, 2003, wherein you requested our views regarding the amount to be reported where a registered retirement savings plan ("RRSP") disposes of its shares of a labour sponsored venture capital corporation ("LSVCC") and distributes the net proceeds, after the early redemption taxes under Part XII.5 of the Income Tax Act (the "Act"), to the RRSP annuitant.
Even though our technical interpretation 960661 dated April 29, 1996 states that the net amount (after the early redemption taxes under Part XII.5 of the Act) has to be reported on the T4RSP, you would like our confirmation of this position because one of your clients has received contradictory information from another CCRA official. The official based his or her position on the fact that a T5008 requires that the disposition of a share of a LSVCC be reported at an amount equal to the fair market value of the share before the applicable taxes under Part XII.5 of the Act.
Under subsection 211.8(1) of the Act, the person who was the shareholder immediately before the redemption, acquisition, cancellation or disposition of the share of the LSVCC is subject to the tax under Part XII.5 of the Act.
Where an individual is the shareholder immediately before the redemption, acquisition, cancellation or disposition of the share of the LSVCC, the individual is subject to the tax under Part XII.5 of the Act and the person who redeems, acquires or cancels the share of the LSVCC is required, under subsection 211.8(2) of the Act, to withhold the Part XII.5 taxes from the proceeds paid for the share. Since the withholding represents a tax payable by the individual who is disposing of the share, the proceeds to be reported on the T5008 would be the full amount paid for the redemption, acquisition, cancellation or disposition of the share of the LSVCC before the required withholding.
Under subsection 146(8) of the Act, the annuitant under an RRSP is required to include in his or her income the total of all amounts received in the year as benefits out of or under the RRSP.
Where an RRSP is the shareholder immediately before the redemption, acquisition, cancellation or disposition of the share of a LSVCC, the RRSP would be the taxpayer that is subject to the tax under Part XII.5 of the Act. In the case where an RRSP disposes of a share of a LSVCC to distribute property to the annuitant and the disposition of the share of the LSVCC is subject to taxes under Part XII.5 of the Act, the RRSP will only have the net amount to distribute to the annuitant. Since the annuitant has only received the net amount paid to the RRSP by the person who redeems, acquires or cancels the share of the LSVCC, subsection 146(8) requires that the net amount received by the RRSP and distributed to the annuitant be reported as a benefit on a T4RSP Supplementary. The fact that the T5008 reflects the gross amount in respect of redemptions, acquisitions, cancellations or dispositions of shares of a LSVCC owned by an individual does not affect the amount included in the RRSP annuitant's income. This results because the RRSP and the annuitant under the RRSP are separate and distinct taxpayers for purposes of the Act.
For your information, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Customs and Revenue Agency's electronic library. 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 electronic library version, or they may request a severed copy 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.
Mickey Sarazin, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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