19 March 1992 Income Tax Severed Letter 9132045 - Definition of Earned Income for RRSP Purposes

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Subject: DEFINITION OF EARNED INCOME FOR RRSP PURPOSES Section(s): 146(1)(c), 248(1) - salary or wages, REG 100, 5(1)]

XXX 5-913204 P. Spice (613) 957-8953

Attention: XXX

March 19, 1992

Dear Sirs:

Re: Definition of Earned Income
Paragraph 146(1)(c) of the Income Tax Act

This is in reply to your letter of November 7, 1991, in which you ask whether a lump-sum distribution from a retirement compensation arrangement ("RCA") which is included in income under paragraph 56(1)(x) of the Income Tax Act (the "Act") could be considered "earned income" as defined in the above-noted provision.

As you point out, an RCA distribution could be considered to be earned income if it is income from an office or employment (clause 146(1)(c)(i)(A) of the Act). We also agree that the payment out of an RCA would not fall under the definition of "salary or wages" contained in subsection 248(1) of the Act.

We do not believe that the meaning given to the word "remuneration" in Regulation 100 of the Act assists in determining whether an amount is "other remuneration" within the meaning of subsection 5(1) of the Act.

Regulation 100 prescribes certain amounts to be subject to withholding tax and the word "remuneration" has been selected to describe a number of disparate amounts for this purpose. The definition is restricted in its application to Part 1 of the Regulations and Schedule I. There are a series of payments listed in Regulation 100, such as retiring allowances or excess amounts out of a registered retirement income fund, which are not remuneration in the ordinary sense of the word. Furthermore, the words "other remuneration" must be read in the context of subsection 5(1) and, therefore, must describe amounts like salary or wages.

With respect to paragraph 56(1)(a) of the Act, in our view, a distribution out of an RCA might, depending on the circumstances, be a pension benefit or a retiring allowance. The amounts described under subparagraphs (i) and (ii) of that paragraph explicitly exclude RCA payments included in income under paragraph 56(1)(x); it would not be necessary to exclude such payments if they could not be considered to be either of the two types of amounts described. In addition, paragraph 60(j.1) of the Act refers to a retiring allowance paid out of an RCA.

Furthermore, it is our position that a registered pension plan which has its registration revoked becomes an RCA and paragraph 147.1(3)(b) of the Act implies that a plan for which registration is refused will be an RCA. Based on the foregoing, we suggest that the Department of Finance explanatory notes which were released on December 11, 1989, and explained which amounts would no longer be treated as earned income would extend to an amount out of an RCA if that amount were either a superannuation or pension benefit, or a retiring allowance.

We trust that the foregoing comments are helpful, although we point out that they are not binding on the Department.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate