3 October 2014 External T.I. 2013-0509751E5 - RRSP or RRIF payments to a resident of New Zealand

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: What is the main difference between the treatment of a lump sum pension payment from an RRSP or a RRIF in Canada to a resident of New Zealand under the current Convention Between the Government of Canada and the Government of New Zealand signed on May 13, 1980 and the Convention between Canada and New Zealand for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income signed on May 3, 2012 which has not entered into force as of the date of this letter?

Position: The Current Treaty may apply a 15% withholding tax rate to lump-sum pension payments, however, the New Treaty limits the 15% reduced rate to only periodic pension payments.

Reasons: Pursuant to the terms of the Treaties.

XXXXXXXXXX
2013-050975
Keely Storr

October 3, 2014

Dear XXXXXXXXXX,
Re: RRSP and RRIF payments to New Zealand Resident

We are writing in response to your email dated October 27, 2013 in which you asked us to comment on the tax treatment of registered retirement savings plan (RRSP) and registered retirement income fund (RRIF) payments paid by a resident of Canada to a non-resident, specifically, a resident of New Zealand.

Unless otherwise stated, all references to a statute are to the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supp.), as amended to the date of this letter (the Act) and every reference herein to a section, subsection, paragraph, subparagraph or clause is a reference to the relevant provisions of the Act.

Our comments

We would like to provide the following general comments which reflect our views on the tax treatment for RRSP payments (either periodic or in a lump-sum) or RRIF payments to non-residents in New Zealand.

We have previously outlined our position, which has not changed as of the date of this letter, regarding the tax treatment of RRSP and RRIF payments paid to residents of New Zealand under the current Canada – New Zealand Income Tax Convention (Current Treaty). You may wish to review the following document which may be of assistance:

1. E9626675

We understand you have received a copy of this document previously.

You have also requested clarification of the tax treatment of RRSP and RRIF payments, as mentioned above, under the Convention between Canada and New Zealand for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (New Treaty) signed on May 3, 2012 which has not yet entered into force as of the date of this letter.

An RRSP payment described in paragraph 212(1)(l) of the Act which is made to a non-resident is subject to Part XIII tax at the rate of 25%. Similar treatment applies to a RRIF payment as described in paragraph 212(1)(q) of the Act.

Article 17 of the New Treaty provides relief for a "periodic pension payment", however, the New Treaty does not define the term "periodic pension payment". A "pension" is defined in section 5 of the Income Tax Conventions Interpretation Act (ITCIA) as including, for payments that arise in Canada, any RRSP or RRIF payments (lump-sum or periodic). Generally, section 5 of the ITCIA indicates that a "periodic pension payment" means, in respect of payments that arise in Canada, a pension payment, other than (a) [not relevant for the purposes of this letter], (b) a payment before maturity, or a payment in full or partial commutation of the retirement income, under a registered retirement savings plan or (c) a payment at any time in a calendar year under a registered retirement income fund, where the total of all payments exceeds either twice the minimum payment required annually or 10% of the fair market value of the property in the plan at the beginning of the year. [the rest of the provision is not relevant for the purposes of this letter].

Any payment that qualifies under this definition would be considered a "periodic pension payment". Paragraph 2 of Article 17 of the New Treaty stipulates that the withholding tax rate on a periodic pension payment shall not exceed the lesser of 15% of the gross amount of the payment and the rate of tax which would have been payable under Part I of the Act in respect of all periodic pension payments received in the year if the individual were resident in Canada.

It should be noted that under the definition of "periodic pension payment" in section 5 of the ITCIA, neither a payment from an RRSP before maturity or in full or partial commutation of the retirement income under an RRSP (such as a a fixed or single lump-sum payment from your RRSP annuity that is equal to the current value of all or part of your future annuity payments from the plan), or a payment from a RRIF that exceeds either twice the minimum payment or the 10% threshold, is considered to be a "periodic pension payment". As a result, such payments are not eligible for a reduced rate of withholding tax under the New Treaty, and therefore, would be subject to Canadian non-resident withholding tax at the rate of 25% under either paragraph 212(1)(l) or 212(1)(q) of the Act, as applicable.

In addition, since the Current Treaty and the New Treaty have pension and annuity provisions, then the pension provision, as the more specific provision, is considered to apply and, by extension, a periodic pension payment would not be considered to be an annuity.

In summary, the main changes that will be effected by the New Treaty, with regards to pension payments are as follows:

• The removal of the $10,000 threshold, as discussed in our document E9626675, for taxation of pension and annuity payments arising in Canada;
• The limiting of the 15% reduced rate to only periodic pension payments where, under the Current Treaty, that rate is available for any pension payment in excess of the $10,000 threshold as discussed above; and
• The expansion of the pension definition to include any payment made under a sickness, accident or disability plan, as well as any payment made under the social security legislation in Canada.

A second protocol to the New Treaty was signed on September 12, 2014 however, the amendments only affect specific government pensions arising in New Zealand.

This technical interpretation provides general comments about the provisions of the Income Tax Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings.

We trust these comments to be of assistance.

Yours truly,

Olli Laurikainen, CPA, CA
For Director
International Division
Income tax Rulings Directorate