23 January 1992 Income Tax Severed Letter 9130765 - Withholding Tax on RRIF Payments to a U.S. Resident

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.

5-913076
                                           M.P.Baldwin
                                           957-8953
   24(1)

Attention: 19(1) January 23, 1992 Dear Sirs:

Re: Withholding Tax on RRIF Payments to a U.S. Resident

This is in reply to your letter of October 24, 1991 requesting confirmation of Revenue Canada's policy on the rate of withholding tax prescribed by the Canada-U.S. tax treaty for payments from a registered retirement income fund("RRIF").

The position taken by the department in the past has been that where the arrangement between the RRIF carrier and the annuitant is such that the carrier is obligated to make equal payments to the annuitant at stated intervals of three or more, the payments would represent periodic pension payments for the purpose of the Canada-U.S. treaty. However, where an arrangement is in place and a payment in excess of the minimum amount is requested, this excess payment would normally not be considered as a periodic pension payment and as such would be subject to withholding tax of 25%.

The department of finance has recently released draft amendments to the Income Tax Conventions Interpretation Act which will affect the department's position stated above. In the draft legislation the definition of pension will include payments arising in Canada out of a RRIF. It also states that a payment made after December 20, 1991 that is otherwise a periodic pension payment would not be a periodic payment and thus subject to the full 25% Part XIII tax where, subject to certain exceptions, the total of all payments made under the RRIF at or before that time of the payment and in the year exceeds the greater of

     (a)  twice the amount that would be the minimum amount
          under the fund for the year, and

     (b)  10% of the amount that would be the fair market
          value of the property held in connection with the
          fund at the beginning of the year

if all property transferred in the year and before that time to the carrier of a fund as consideration under the fund had been transferred immediately before the beginning of the year and the definition of "minimum amount" in paragraph 146.3(1)(b.1) of the Income Tax Act were applicable with respect to all RRIF's.

It is a question of fact whether a payment out of a RRIF is a periodic pension payment which must be determined on a case-by-case basis. However, based on the facts contained in your letter it appears that your client would not meet the criteria contained in the draft legislation and as a result the payments out of the RRIF to your client would not be periodic pension payments under the Canada-U.S. treaty.

We trust the above comments will be of assistance to you.

Yours truly,

for Director Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch

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