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.
Principal Issues: Can a non-resident of Canada withdraw an amount out of his RRSP and deduct non-capital losses carried forward that were incurred while he was a resident of Canada to prevent the losses from expiring.
Reasons: The taxpayer can elect under section 217 of the Act for no Part XIII tax to be payable on the RRSP withdrawal. The RRSP withdrawal will be "Canadian benefits" for purposes of subsection 217(2). The non-capital losses carried forward can be deducted from the amount determined under subparagraph 217(3)(b)(i) (through paragraph 115(1)(d)). Even if the amount determined under subparagraph 217(3)(b)(i) was to be lesser than the amount determined under subparagraph 217(3)(b)(ii) and not be the amount that is the "taxable income earned in Canada" (TIEC), the non-capital losses carried forward would nevertheless be deductible through the operation of the rules for the credit under subsection 217(6).
March 22, 2005
Re: Application of Non-Capital Loss by a Non-Resident
This is in reply to your letter of May 26, 2004, requesting our views regarding a significant non-capital loss you incurred in a prior year when you were a resident of Canada.
You have subsequently moved to the United States and became a non-resident. You indicate that it is unlikely you will have sufficient Canadian income in the future to absorb the loss before it expires. To stop the loss from expiring, you are asking whether you can withdraw an amount from your registered retirement savings plan ("RRSP") so that the RRSP income can be included on a Canadian income tax return under Part I of the Income Tax Act (the "Act") and you can claim your non-capital loss to offset the RRSP income.
The particular situation outlined in the letter relates to a factual one. As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on proposed transactions other than in the form of an advance income tax ruling. However, we are prepared to offer the following general comments, which may be of assistance.
Paragraph 212(1)(l) of the Act requires that Part XIII tax be withheld, at a rate of 25%, on a payment to a non-resident out of an RRSP that would be taxable if the payment had been received by a resident of Canada. The withholding requirement is subject to possible relief under an income tax treaty that Canada may have with the country of residence of the recipient of the payment. For example, under the Canada - U.S. Tax Convention, the withholding rate is reduced to 15% but only in respect of periodic pension payments. A withdrawal of an amount out of an RRSP does not qualify as a periodic pension payment.
However, instead of having the amounts taxed under Part XIII of the Act, section 217 of the Act gives non-residents the option of being taxed on certain income, including income described in paragraph 212(1)(l) of the Act, at the same marginal rate under Part I as residents of Canada who receive similar payments.
To accomplish this, paragraph 217(3)(b) recalculates the non-resident's "taxable income earned in Canada" (TIEC), as the greater of two amounts. One of these amounts, the amount determined in subparagraph 217(3)(b)(i) may be reduced by non-capital losses carried forward for previous years. Moreover, notwithstanding that the greater amount, and therefore the taxpayer's TIEC may be determined in subparagraph 217(3)(b)(ii), a reduction in the amount determined under subparagraph 217(3)(b)(i) will increase a special tax credit determined in subsection 217(6). In sum, a non-capital loss claim will generally reduce the amount of tax payable on income taxable under Part I by virtue of an election made under section 217.
Before withdrawing any amount from your RRSP, if you intend to make an election under section 217 of the Act, you can apply to have the CRA approve a reduction of the Part XIII tax that the payer would otherwise have to withhold by sending the CRA a completed Form NR5, Application by a Non-Resident of Canada for a reduction in the Amount of Non-Resident Tax Required to be Withheld. All of our forms publications can be found on our website at www.cra-arc.gc.ca.
We trust the above comments will be of assistance to you.
Roxane Brazeau-LeBlond, CA
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch
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