7 June 1995 Internal T.I. 9411667 - WITHDRAWALS FROM SPOUSAL RRSP BY STATUS INDIAN

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.

Principal Issues:

Whether withdrawals from a spousal RRSP by a status Indian would be taxable when they relate to contributions made by an individual who is not a status Indian. The status Indian lives on a reserve and the head office of the RRSP financial institution is located on the reserve.

Position TAKEN:

Since the withdrawals from the spousal RRSP relate to contributions made by an individual who is not a status Indian, the withdrawals will generally be taxable.

Reasons FOR POSITION TAKEN:

In Williams v. Her Majesty the Queen, 92 DTC 6320, (1992) 1 CTC 225, the Supreme Court rejected the situs of the debtor test as the sole test for determining whether the personal property of an Indian was situated on a reserve. The approach adopted in Williams requires an examination of all factors connecting income to a reserve to determine if the income is located on the reserve. As a result of Williams, the Department is of the view that when payments from an RRSP relate to income that was exempt from tax, the payments will usually be exempt from tax. If only a portion of the payments relate to income that was exempt, then the exemption will be prorated.

						June 7, 1995

	Ottawa Tax Services		HEADQUARTERS
	Client Assistance			M. Azzi
	Attention: G. Obert		957-8953

						7-941166

Withdrawals from Spousal RRSP by Status Indian

We are writing in reply to your memo of May 2, 1994 inquiring whether withdrawals from a spousal RRSP by a status Indian would be taxable. We understand that an individual, who is not a status Indian, has made contributions to his spouse's RRSP and that the withdrawals by the spouse relate to these contributions. The spouse is a status Indian who lives on a reserve, and the head office of the RRSP financial institution is located on the reserve.

We apologize for the unavoidable delay that has been encountered in replying to your request. In light of the decision of the Supreme Court of Canada in Williams v. Her Majesty the Queen, 92 DTC 6320, (1992) 1 CTC 225, the Department has had to review its interpretation of the scope of the exemption from income taxation provided under the Indian Act.

Our Comments

The Department's previous position was that, if payments out of an RRSP were made from an institution whose head office was located on a reserve, the payments should be exempt from tax. In light of Williams, however, this view is no longer appropriate.

One general direction provided in Williams was that "an overly rigid test which identified one or two facts as having controlling force...would be open to manipulation and abuse". The Supreme Court rejected the situs of the debtor test as the sole test for determining whether the personal property of an Indian was situated on a reserve. The approach adopted in Williams requires an examination of all factors connecting income to a reserve to determine if the income is located on the reserve.

Based on the guidance provided in Williams, the Department has reviewed its position on RRSPs. As a result of our review, we are of the view that when payments from an RRSP relate to income that was exempt from tax, the payments will usually be exempt from tax. If only a portion of the payments relate to income that was exempt, then the exemption will be prorated. This position is the same as the position for registered pension plan benefits, unemployment insurance benefits and Canada Pension Plan payments reflected in the Indian Act Exemption for Employment Income Guidelines issued in June, 1994.

In the circumstances described in your memo, since the withdrawals from the spousal RRSP, by the spouse, relate to contributions made by an individual who is not a status Indian, the withdrawals will generally be taxable. If amounts are withdrawn by the spouse in a taxation year in which the individual made contributions to the spousal RRSP, or in the following two years, the amounts will generally be taxable in the individual's hands to the extent provided in subsection 146(8.3). If, after this period, the spouse withdraws amounts which relate to contributions made by the individual, such amounts will generally be taxable in the spouse's hands by virtue subsection 146(8).

We trust that these comments will be of assistance.

R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch