20 October 1993 Internal T.I. 9322877 F - Home Buyers' Income Inclusion

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.

Thunder Bay District Office Head Office Financial Industries Division Client Assistance Division

Attn:  Dave Kannegiesser

Home Buyers' Plan (the "Plan")

This is in reply to you facsimile transmission of July 28, 1993, in which you ask us a question concerning the income inclusion rules under section 146.01 of the Income Tax Act (the "Act"), and the use of forms T3012A ("Tax Deduction Waiver on a Refund of Undeducted RSP Contributions Made in 19__"), Form T1048 ("Home Buyers' Plan - 1992 Income Inclusion for Certain RRSP Contributions"), and T746 ("Calculation of Deduction for Refund of RRSP Excess Contributions"). The fact situation you described, your query and our comments follow. (References to the legislation are to the most recent amendments announced in the Ways and Means Motion of March 24, 1993; a minor amendment announced August 30, 1993 is not relevant to this discussion.)

Facts

A taxpayer takes these steps in the following order:

1.     July 1, 1992 - Contributes $6000.00 to a Registered Retirement Savings Plan ("RRSP").

2.     July 2, 1992 - Withdraws an "eligible amount" (within the meaning of subsection 146.01(1) of the Act) of $6000.00 from the RRSP.

3.     August 3, 1993 - Contributes $6000.00 to an RRSP.

4.     Completes Form T3012A re the July 1, 1992 contribution and withdraws it free of withholding tax.

5.     Files the 1992 T1 Return of Income and attaches form T1048. No contribution to an RRSP is claimed in the T1, and the 1992 income inclusion calculated on Form T1048 is reduced because of the 1993 withdrawal in 4. above.

6.     Files the 1993 T1 attaching forms T3012A and T746, and

(a)     claims the 1993 RRSP contribution

(b)     reports the T3012A withdrawal

(c)     claims a deduction for the T3012A withdrawal on the T1 as calculated on the T746.

Your Comments and Query

You advise that these steps appear to defeat the purpose of the Home Buyers' Plan and ask whether the phrase in item 2 of Area I of form T1048 ("or withdrawals of amounts contributed after March 1, 1993") "precludes the above solution" or "does the designation on the T3012 that this is a withdrawal of the July 92 amount negate this statement".

Our Comments:

The purpose of the subsection 146.01(9) (and now also subsection 146.01(10)) income inclusion is to prevent individuals from topping-up their RRSP's during the currency of the Home Buyers' Plan program and to permit tax-exempt withdrawals with respect only to pre-Plan amounts. In the event that taxpayers mistakenly contribute to an RRSP during the "forbidden period", they may preserve their RRSP deduction limit by withdrawing the contribution and including it in income under subsection 146(8) of the Act, and taking a corresponding deduction under subsection 146(8.2) of the Act.

With respect to the situation described above, the taxpayer will be unable to take advantage of the deduction under 146(8.2) of the Act because the amount of $6000.00 withdrawn in 1993 is not taken from the RRSP to which the undeducted premiums were paid. Form T3012A contains a designation in Area II which indicates that the undeducted premiums were contributed to a particular plan, and that plan is identified in the designation. Form T746, at line 13, refers to contributions received in the year "from the plan as a refund of those contributions". The RRSP to which the July 1992 contribution was made was collapsed when the "eligible amount" was withdrawn the next day; the taxpayer cannot satisfy the condition in paragraph 146(8.2)(b) that he or she can reasonably be regarded as having received a payment from an RRSP "in respect of such portion of the undeducted premiums".

(Although your facts description refers to an RRSP from which all funds are taken, our view would be the same where funds remain in the original RRSP but in a lesser amount than the amount withdrawn; the full amount of the withdrawal under paragraph 146(8.2)(b) must be from the particular RRSP and relate to "those contributions". In other words, if the taxpayer received an eligible amount on July 2, 1992, of $3500.00 and $2500.00 remained in the RRSP, the RRSP could not then be topped-up in 1993 and a withdrawal of $3500.00 taken under paragraph 146(8.2)(b) of the Act. The tax-free withdrawal would be restricted to $2500.00.)

Additionally, and as you note, Form T1048 contains a requirement in Item 2 of Area I that withdrawals of amounts contributed to RRSP's after March 1, 1993 cannot be used to reduce a taxpayer's 1992 "net contribution balance"; the taxpayer would still be subject to an income inclusion in 1992 pursuant to subsection 146.01(9) of the Act.

Finally, the taxpayer will lose the RRSP "room" for the 1992 taxation year.

To conclude, both the taxpayer and RRSP issuer would have to falsify Form T3012A and, in addition, the taxpayer would have to falsify Forms T1048 and T746, in order to achieve the result outlined in your memorandum

We trust this explanation addresses your concerns.

for DirectorFinancial Industries DivisionRulings Directorate