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: What are the CCRA's requirements to issue a waiver confirming that withholding taxes are not required from payments to a status Indian from an RRSP or RRIF that received funds from an RPP benefit established from tax exempt income?
Position: If the RPP carrier and/or relevant employer can provide the RRSP/RRIF carrier with appropriate documentation and information evidencing that a tax-exempt RPP benefit arose from tax-exempt employment income and the quantum of the tax exempt benefit transferred from the RPP to the RRSP/RRIF, as long as no other monies have been co-mingled with the tax exempt RPP funds, payments from the RRSP/RRIF can be made by the carrier without withholdings. Where co-mingling has occurred, it will be necessary to trace the amounts originating from exempt income.
If the carrier does not have sufficient information to confirm that the RRSP amount is tax-exempt, the Indian can request a waiver from the CCRA. The CCRA will require written confirmation of the Indian's periods of exempt employment and the corresponding tax-exempt RPP benefit that was transferred to the registered vehicle. This information would most likely come from the status Indian's employer or RPP administrator. If the RRSP/RRIF funds originating from an exempt RPP benefit have been commingled with other funds, the CCRA must be provided with the appropriate tracing information.
Reasons: Information provided by Trust Accounts Division (formerly Source Deductions) of Assessment & Collections Branch
June 16, 2003
CALGARY TSO HEADQUARTERS
Income Tax Rulings
Attention: Tanya Agecoutay Directorate
Withholding taxes on payments to status Indians from registered vehicles
This is in response to your facsimile of April 23, 2003 seeking our comments on the Canada Customs and Revenue Agency's ("CCRA") requirements in order to waive withholding taxes when payments are made to a status Indian from a registered retirement savings plan ("RRSP") or registered retirement income fund ("RRIF") where the RRSP/RRIF amount originated from a registered pension plan ("RPP") benefit arising from tax-exempt employment income.
Because procedures involving the remittance (or waiver) of withholding taxes are not a matter of interpretation of the Income Tax Act, we discussed your question with officials from Headquarters Trust Accounts Division of the Assessment and Collections Branch. We can provide the following information, based on these discussions.
It is possible that the RPP carrier and/or relevant employer can provide the RRSP/RRIF carrier with the appropriate documentation and information evidencing that a tax-exempt RPP benefit arose from tax-exempt employment income and confirm the quantum of the tax-exempt benefit transferred from the RPP to the RRSP/RRIF. If the RRSP/RRIF carrier can also confirm that no other monies have been co-mingled with the tax-exempt RPP funds, then payments from the RRSP/RRIF to the status Indian can be made by the carrier without withholdings. Where co-mingling has occurred, it will be necessary to trace the amounts originating from tax-exempt income in order to determine what portion of the RRSP/RRIF payments will be tax-exempt. A T4RSP/T4RIF should be completed for all payments. Although not mandatory, an annotation or footnote on the T4RSP/T4RIF regarding the tax-exempt nature of a payment would be of assistance.
If the carrier is not in possession of sufficient information to proceed as described above the status Indian can request a waiver from the CCRA. The CCRA will require written confirmation of the status Indian's periods of tax-exempt employment and the corresponding tax-exempt RPP benefit that was transferred to the RRSP/RRIF. This information would most likely come from the status Indian's employer or RPP administrator. If the RRSP/RRIF funds originating from an exempt RPP benefit have been commingled with other funds, the CCRA must be provided with the appropriate tracing information. This information would likely come from the RRSP/RRIF carrier.
We note that your question specifically addresses the situation in which a status Indian's tax-exempt RPP benefit has been transferred to a RRSP/RRIF. By way of clarification, we confirm that RPP benefits that arise from a status Indian's tax-exempt employment income are tax-exempt. Accordingly, if the exempt RPP benefit is in turn transferred to an RRSP/RRIF, absent any co-mingling of funds, payment of both principal and earnings from the RRSP/RRIF will be tax-exempt. This situation is distinct from that in which a status Indian makes direct RRSP contributions from tax-exempt employment income. In such a situation, although withdrawal of the principal amount would be tax-exempt, withdrawals of earnings from the RRSP would be taxed in accordance with the rules pertaining to investments by status Indians. (The leading case in this regard is Recalma v. the Queen, which basically held that unless the interest income can be identified as exclusively generated on a reserve, it will be taxable.) Additionally, because RRSP contribution limits are determined by an individual's earned income, which does not include tax-exempt income, the status Indian may be subject to Part X.1 tax if contributions to the RRSP were made in the absence of earned income.
We trust that these comments will be of assistance.
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. You should make requests for this latter version to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
Mickey Sarazin, C.A.
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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