11 May 1988 Income Tax Severed Letter 5-5587 - []

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.

XXXX R. B. Day (613) 957-2136

MAY 11 1988

Re: Part XIII of the Income Tax Act Article XVIII of the Canada-U.S. Tax Convention Rate of Withholding Tax on Payments from Registered Retirement Income Fund ("RRIF")

We are writing in reply to your letter of February 13, 1988, wherein you requested the rate of withholding tax to be applied to payments received from an RRIF.

Our understanding of the facts as set out in your letter is as follows:

XXXX

You have specifically requested our views as to whether the rate of withholding tax would be 25% of the gross amounts paid, pursuant to paragraph 212(1)(h) of the Income Tax Act (the "Act") or 15% by virtue of Article XVIII of the Canada-U.S. Tax Convention (the "Convention").

It is our opinion that the rate of withholding tax on the payments received from your RRIFs would be 25% of the gross amount and that paragraph 2(a) of Article XVIII of the Convention would not apply to reduce the withholding rate to 15%. The reasons for our opinion are as follows:

It is our view that the term "pension" for purposes of the Convention would generally only include those payments made out of a registered pension fund or plan. Paragraph 3 of Article XVIII of the Convention expands the definition of pension to include, among other things, any payment under a retirement plan. An RRIF would, therefore, be a retirement plan pursuant to this Article.

The reduced rate of withholding tax, provided for under paragraph 2(a) of Article XVIII of the Convention only applies to periodic payments of pension benefits. Since the term "periodic payment" is not defined in the Convention, we look to the ordinary meaning under the Canadian Income Tax Act. In this respect, a periodic payment of a pension benefit generally means a series of payments made for the purpose of providing the recipient with retirement income throughout (or for a greater part of) the recipient's life.

Where an RRIF is concerned, the periodic payment would have to be for a term ending at age 90 for each recipient, in order to qualify as periodic pension benefits.

Since the payments from the RRIF have been commuted to a period of 60 months, it is our opinion that they do not constitute periodic pension benefits for purposes of the Convention. As a consequence paragraph 2(a) of Article XVIII of the Convention would not apply to reduce the rate of withholding tax.

We trust that this is the information you require.

Yours truly

for Director Small Business and General Division Specialty Rulings Directorate Legislative and Governmental Affairs Branch