2 December 2004 External T.I. 2004-0105281E5 - Withholding on payment to non-resident RRSP bene.

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: Must Part XIII tax be withheld on a payment from the RRSP of a deceased annuitant to a non-resident beneficiary who, at the date of death, was not a spouse or common-law partner of the deceased, and was also not a financially dependent child or grandchild?

Position: Only if the payment exceeds the amount that was included in the income of the deceased annuitant pursuant to subsection 146(8.8).

Reasons: The wording of paragraph 212(1)(l) is clear.

XXXXXXXXXX 								2004-010528
P. Kohnen, CMA
December 2, 2004

Dear XXXXXXXXXX:

Re: Technical Interpretation - Payment to Non-resident Beneficiary from RRSP

This is in response to your e-mail submission of November 24, 2004 to Phil Girvin of the Assessment and Client Services Branch, which has been forwarded to our Directorate. As was noted during our subsequent telephone conversation (XXXXXXXXXX/Kohnen), XXXXXXXXXX of your company has also contacted the Registered Plans Directorate with a similar enquiry; this letter will address both submissions. Your submissions request our comments on the requirements to withhold tax in respect of the payment of amounts to a non-resident beneficiary of a registered retirement savings plan ("RRSP") for which your company is the issuer.

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following general comments, which may be of assistance.

Based on your submissions and the above-noted telephone discussion, the scenario may be summarized as follows:

1. The annuitant of an unmatured insured RRSP, who was a resident of Canada, dies.

2. The sole beneficiary, who is named as such in the RRSP contract, is a non-resident who is a relative of the deceased annuitant, but is not, immediately before the death of the annuitant, a spouse or common-law partner of the annuitant or a financially dependent child or grandchild of the deceased annuitant.

3. Subsequent to the death of the annuitant, the issuer will pay the assets of the RRSP directly to the named beneficiary referred to in 2 above.

Our comments

Paragraph 212(1)(l) of the Income Tax Act (the "Act") generally 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.

Where the exception for a direct transfer of the payment, as described in paragraph 212(1)(l) of the Act, does not apply, Part XIII tax must be withheld on the portion (if any) of the payment to the beneficiary that would, if that beneficiary were a resident of Canada, be required by section 146 of the Act to be included in the income of the beneficiary for the year.

Pursuant to subsection 146(8) of the Act, a taxpayer is required to include in their income for a taxation year all amounts received in the year as benefits from an RRSP, other than excluded withdrawals under either the Home Buyers' Plan or Lifelong Learning Plan (as defined in subsection 146.01(1) and 146.02(1), respectively), and amounts already included pursuant to paragraph 146(12)(b) of the Act.

When the annuitant under an RRSP dies, subsection 146(8.8) of the Act deems the annuitant to have received, immediately before death, a benefit equal to the fair market value of the property held in the RRSP at that time. The definition of "benefit" in subsection 146(1) of the Act determines what portion of an amount received out of an RRSP (if any), will be a benefit for the purpose of applying subsection 146(8). With respect to the amounts received by the beneficiary, pursuant to paragraph (a) of the definition of benefit, the portion of the payment that was deemed to have been received by the deceased annuitant, pursuant to subsection 146(8.8), is excluded.

Accordingly, if the actual payment to a non-resident RRSP beneficiary does not exceed the amount that was included in the income of the deceased annuitant, no Part XIII withholding will be required on the subsequent payment to the beneficiary; however, the issuer, as payor, will be required to withhold Part XIII tax on payments in excess of the amount so included.

We trust that the above comments will be of assistance to you. Please do not hesitate to contact Mr. Phil Kohnen at (613) 957-2093 should you require further information.

Yours truly,

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

c.c. Allen Scantland
Registered Plans Directorate