16 August 1989 Internal T.I. 74227 F - RRSPs Deductions at Source

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.

SUBJECT: RRSP's Deductions at Source

This is in reply to your request for our comments on your memorandum of August 10 addressed to J. Rutherford of Enquiries and Taxpayer Assistance Division.  The memo is in respect of proposed changes to paragraphs 100(1) "remuneration" (i) and 103(6)(c) of the regulations in address to concerns raised by S. Moran in a memorandum of February 18, 1987.  We are not in possession of that memorandum, however, as there is some urgency to your request, we have proceeded to review your concerns in its absence.

Your concerns and our comments thereto are as follows:

(a)       Why are non-annuity payments made to an annuitant described in subparagraph 146(1)(a)(ii) of the Act (the surviving spouse, in the case of matured RRSP) not to be subject to tax deductions at source?  Such a payment would arise if the surviving spouse had part of the RRSP annuity commuted, as permitted by subparagraph 146(2)(b)(ii).

     Prior to June 30, 1978 the provision applied to specified payments without regard to who the recipient was or whether or not the original annuitant was alive.  With the amendment of section 146(1)(a) of the Act to extend the definition of "annuitant" to include the original annuitant's spouse upon his death, the regulations were changed to limit the application of the provision to payments received by any taxpayer out of an RRSP during the original annuitant's lifetime.  No such restriction was placed on payments out of an "amended plan".

     Our records do not indicate any reasons behind this limitation hence, we would think that it was done as a matter of policy.  We would note that surviving spouses in receipt of non periodic annuity payments are more often than not likely transferring the amounts to other plans on a tax deferred basis.

(b)       Why should we be requiring tax deductions at source from payments out of or under an RRSP that are not "benefits"; i.e.; are not required to be included in income?  I would have thought we should be concerned only about amounts (other than periodic annuity payments) that are included in income.

     We would agree that application of the provisions could be limited to taxing "Benefits'' out of RRSPs as defined under 146(1)(b) of the Act.  This would certainly be appropriate in terms of the exceptions considered under subparagraphs 146(1)(b)(ii) and (iii).  It may however, be too onerous on a plan trustee paying an amount that could be subject to the provisions of 146(1)(b)(i).  That is, to what extent would a trustee be required to verify the non-application of subsection 146(8.9) of the Act before he could release funds without withholding tax.

(c)      Why shouldn't we require tax deductions at source from non-periodic annuity payments made out of or under a deregistered RRSP where the deregistration occurred before May 26, 1976?  To the extent such plans still exist, all payments therefrom are included in income, and annuitants may well wish to withdraw irregular amounts.

     We are not sure of your intent here.  Presently such payments are subject to tax deductions.  Regulation paragraphs 100(1)  "remuneration" (j) and 103(63(d) both require withholding on payments out of all "amended plans" except where 146(12)(a)  applied to the plan after May 25, 1976.  Plans deregistered after that date are subject to the general provisions for intervivos trusts but plans deregistered before that date are however subject to special transitional provisions which require the continued application of the regulations until they are wound up.

In considering the proposed amendment attached to your memorandum we have the following concerns:

1.     By its wording payments from an "amended plan" would only be subject to tax deductions during the lifetime of the annuitant.  This would be a limitation to that provided in the present regulations and we question whether this is intended;

2.     In our view, any modification of the regulations for RRSPs should not be done without making comparable amendments to the regulations for Registered Retirement Income Funds.  This would entail amending paragraphs 100(1) "remuneration (j.1) and 103(6)(d.1).

Yours truly,

for DirectorFinancial Industries Division Rulings Directorate