24 February 2010 External T.I. 2009-0323701E5 - RRSP, RRIF, Pension Credit, and GAAR

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: An individual converts an RRSP to a RRIF, claims a pension credit on a withdrawal from the RRIF and then re-contributes to an RRSP in the same tax year. Is GAAR applicable?

Position: Provided general comments.

Reasons: Whether GAAR applies can only be determined in context of an advance income tax ruling request.

XXXXXXXXXX 						2009-032370

February 24, 2010

Dear XXXXXXXXXX :

Re: RRSP, RRIF, Pension Credit, and GAAR

This is in reply to your e-mail of May 21, 2009 requesting our comments concerning a situation where an individual who is between age 65 and 71 converts a Registered Retirement Savings Plan (RRSP) to a Registered Retirement Income Fund (RRIF). The individual withdraws an amount from the RRIF, claims a pension credit in respect of the RRIF income and then re-contributes the amount withdrawn to an RRSP in the same year. Your question is whether the general anti-avoidance rule (GAAR) would apply.

Written confirmation of the tax implications inherent in particular transactions may only be provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following general comments, which are not binding on the Canada Revenue Agency ("CRA").

Subsection 146(16) of the Income Tax Act (the "Act") permits a direct transfer of an amount from an individual's unmatured RRSP to a RRIF under which the individual is the annuitant on a tax-deferred basis. Pursuant to section 146.3 of the Act, the RRIF carrier must pay a minimum amount to the annuitant every year. The minimum amount is nil in the year in which the RRIF is set up, but for each subsequent year, the minimum amount will be computed by reference to the fair market value of the RRIF property at the beginning of the year and a prescribed factor. The annuitant may receive amounts from the RRIF that are in excess of the minimum amount in any year. In general, subsection 146.3(5) of the Act requires the annuitant of a RRIF to include all of the amounts received out of the RRIF in income.

An individual can claim a pension credit under subsection 118(3) of the Act if the individual has received eligible pension income. Subsection 118(7) of the Act defines "eligible pension income" received by an individual in a taxation year and includes, if the individual has attained the age of 65 years before the end of the taxation year, any pension income received by the individual in the year. "Pension income" is defined in subsection 118(7) of the Act to include a payment out of or under a RRIF or under an amended fund as referred to in subsection 146.3(11) of the Act.

Generally, an individual may deduct contributions to an RRSP based on the individual's RRSP deduction limit pursuant to subsection 146(5) of the Act. The year that the individual turns 71 is the last year in which the individual can make a contribution to an RRSP. In the situation described, the individual may contribute an amount to an RRSP provided the individual has sufficient RRSP contribution room available.

Although the Directorate provides technical interpretations of the law, we do not provide opinions on the application of subsection 245(2) of the Act to a fact situation. Whether the CRA considers a transaction to be an avoidance transaction can only be confirmed in the context of an advance income tax ruling request.

We trust that these comments are of assistance.

Yours truly,

Jenie Leigh
Manager
For Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch