26 October 1993 Administrative Letter 9326756 F - Minimum Tax and RRSP Contribution Withdrawn

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.

R.M. Beith Personal and General Assistant Deputy Minister Section Appeals Branch

Attention:  Neil Wilson

XXXXXXXXXX

Minimum Tax as it relates to RRSP contributions

We are replying to your memorandum of September 17, 1993 concerning the application of minimum tax where a taxpayer has contributed funds to an RRSP and withdrawn a portion thereof within the same taxation year.

XXXXXXXXXX received a retiring allowance of $XXXXXXXXXX in 1991 which he transferred to an RRSP. Later in that same year, he withdrew $XXXXXXXXXX from his RRSP. In determining the amount of adjusted taxable income for minimum tax purposes, a taxpayer is required to compute his income on the basis that the amount deductible under paragraphs 8(1)(m), 60(i), 60(j), 60(j.01), 60(j.02), 60(j.03), 60(j.04), 60(j.1) or 60(j.2) is limited to the amount as determined by paragraph 127.52(1)(a) of the Act. The effect of this provision is to add back any deduction claimed for a contribution to an RRSP, subject to the exceptions described in clauses 127.52(1)(a)(ii)(A) and (B) of the Act.

As a consequence of this provision, XXXXXXXXXX adjusted taxable income for 1991 includes the $XXXXXXXXXX which is required to be included in income by reason of paragraph 56(1)(h) of the Act as well as the $XXXXXXXXXX which was added back for the purpose of calculating the amount of minimum tax payable. While the taxpayer is aware of the availability of a minimum tax credit to be applied in future years where the amount of tax payable for regular purposes exceeds the amount payable as minimum tax, the taxpayer objects to the apparent inclusion of the same amount twice. You have asked for our comments on this issue.

In our view, paragraph 127.52(1)(a) of the Act requires the $XXXXXXXXXX RRSP contribution to be added back in computing adjusted taxable income, notwithstanding that a portion of the tax deferral which the taxpayer had sought was negated by withdrawing the funds within the same year.

We considered whether the taxpayer would be entitled to an additional $XXXXXXXXXX deduction under the minimum tax assumptions on the basis that the $XXXXXXXXXX withdrawn from the RRSP might reasonably be regarded as a partial withdrawal of the undeducted premiums described in subsection 146(8.2) of the Act. Although the $XXXXXXXXXX forms part of the RRSP premium for which no deduction was permitted (under the minimum tax assumptions) and thus would appear to qualify as an amount determined under subsection 146(8.2) of the Act under these assumptions, the authority to deduct an amount described in subsection 146(8.2) of the Act is found in paragraph 60(i) of the Act. Since the amount to be deducted under paragraph 60(i) of the Act for minimum tax purposes does not include this type of deduction, it is our view that there is no provision in the Act which would reduce the amount to be added back to XXXXXXXXXX income for minimum tax purposes.

Note that the same result would occur in the situation where a taxpayer has made an overcontribution of RRSP premiums for regular tax purposes and then withdraws the excess in the manner authorized by the Department (i.e. by completing form T3012 and having the amount of the excess certified by the Department before withdrawing the funds). For the purpose of computing regular tax, the overcontributed amount is included in income under paragraph 56(1)(h) and then deducted under paragraph 60(i) of the Act resulting in no net income inclusion (a reasonable result since the taxpayer was not entitled to a tax deduction when the amount was originally contributed to an RRSP). For minimum tax purposes however, the taxpayer would be required to add back the offsetting deduction available under paragraph 60(i) of the Act with the result that the minimum tax may be payable in respect of such an amount. Since this deduction is only available in respect of unintended excess RRSP contributions, one would not normally expect minimum tax to be applicable because of the minimum tax basic exemption of $40,000.

We also considered the application of subsection 4(4) of the Act. However, since the income inclusion of $XXXXXXXXXX retiring allowance and $XXXXXXXXXX withdrawal of funds from an RRSP are not from the same source, it is our view that subsection 4(4) of the Act is not applicable in this situation.

XXXXXXXXXX

B.W. Dath A/Director GeneralRulings DirectorateLegislative and Intergovernmental Affairs Branch