24 September 1992 Income Tax Severed Letter 9226705 - RRIF Payments to U.S. Residents

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- 922670 P. Spice (613) 957-8953 24(1)

Attention: 19(1)
September 24, 1992

Dear Sirs:

Re: 19(1) This is in reply to your letter of September 3, 1992, concerning the above-noted taxpayers and their plan to receive 24(1) equal annual instalments out of their registered retirement income funds ("RRIF's") after they become residents of the United States. You ask for our opinion concerning the impact of subsection 2(a) of Article XVIII of the Canada-U.S. Income Tax Convention (1980) (the "Convention") and the proposed definition of "periodic pension payment" in section 5 of the Income Tax Conventions Interpretation Act (the "ITCIA") on the proposed transaction you describe in your letter.

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2. The following comments are, therefore, of a general nature only, and are not binding on the Department.

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Pursuant to subsection 2(a) of Article XVIII of the Convention, Canada may impose a withholding tax of 15% on periodic pension payments arising in Canada and paid to a resident of the United States. Section 3 of Article XVIII of the Convention defines "pension" to include any payment under a retirement plan, and a RRIF is considered a retirement plan.

The proposed definition of "periodic pension payment" in section 5 of the ITCIA as announced in the Notice of Ways and Means Motion of June, 1992, states that a periodic pension payment does not include payments out of a RRIF where the total of all payments under the RRIF at or before the time of 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 the 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.

With respect to part (a) of the provision, the aforementioned Notice of Ways and Means also includes a proposed amendment to the definition of "minimum amount" in paragraph 146.3(1)(b.1) for the 1992 and subsequent taxation years. We assume that the 19(1) RRIF's will be subject to the new rules respecting "qualifying" RRIF's ("qualifying retirement income fund" is defined in subsection 7308(1) of the income Tax Act Regulations) and therefore the calculation of the minimum amount each year will be determined using the factors set out in the table in subsection 7308(2) of the Regulations.

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With respect to both parts (a) and (b) of the provision, the fair market value of the RRIF must be determined at the beginning of each year in order that the minimum amount and the 10% limit can be ascertained. This determination is the responsibility of the annuitant and the carrier.

Given that the proposed payments out of the 19(1) RRIF's will be a constant amount but the "minimum amount" and fair market value of the fund will decrease each year, it is our view that the proposed payments will eventually fail to meet the proposed definition of "periodic pension payment". If the age of the younger spouse is used to determine the factor in the "minimum amount" calculation, failure to meet the proposed definition will occur at an even earlier point in time.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate

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