31 March 1994 External T.I. 9333995 - RRIF-PERIODIC PENSION PAYMENT-US CONVENTION(U5-100-18)

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.

			File # 933399

Principal Issues:

Whether periodic payments out of a RRIF are considered to be "periodic pension payments" under paragraph 2(a) of Article XVIII of the Canada-US Convention.

Position TAKEN:

YES. Periodic payments out of a RRIF are considered to be "periodic pension payments" and subject to 15% withholding tax under paragraph 2(a) of Article XVIII of the Canada-US Convention.

Reasons FOR POSITION TAKEN:

Periodic pension payments are defined in section 5 of the ITCIA and include periodic payments from a RRIF. Also, in paragraph 3 of Article XVIII of the US Convention, the term "pensions" includes any payment from a "retirement plan" which is generally considered to include a RRIF. If payments under a RRIF qualify as "periodic pension payments" as defined in section 5 of the ITCIA, such payments will be subject to 15% withholding tax under paragraph 2(a) of Article XVIII of the Canada-US Convention.

To the best of our knowledge, there was no intention in amending the ITCIA to treat periodic pension payments as annuities so that the annuity provision of an income tax convention would apply rather than the pension provision, especially where a convention such as the US Convention specifically contemplated that payments from a RRIF would be dealt with under the term "pension".

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Attention: XXXXXXXXXX 933399

G. Middleton

March 31, 1994

Dear Sirs:

We are replying to your letter in which you requested clarification in respect of the Canadian non-resident withholding tax on payments from a Registered Retirement Income Fund ("RRIF") to a resident of the U.S.

The definition of "periodic pension payment" is found in section 5 of the Income Tax Conventions Interpretation Act (the "ITCIA"). In general, the definition 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 calendar 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 if the definition "minimum amount" in paragraph 146.3(1)(b.1) of the Income Tax Act were applicable with respect to all RRIFs.

Paragraph 2(a) of Article XVIII of the Canada-U.S. (1980) Income Tax Convention (the "U.S. Convention") states: "Pensions may also be taxed in a Contracting State in which they arise and according to the laws of that State; but if a resident of the other Contracting State is the beneficial owner of a periodic pension payment, the tax so charged shall not exceed 15 per cent of the gross amount of such payment;......"

If a payment out of a RRIF qualifies as a "periodic pension payment", as defined under the ITCIA, and it is paid to a resident of the U.S., the Canadian non-resident withholding tax on such payment will be 15% of the gross amount of the RRIF payment pursuant to paragraph 2(a) of Article XVIII of the U.S. Convention.

We trust that our comments will be of assistance to you.

Yours truly,

for Director
Reorganizations and Foreign Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch