3 August 1994 Internal T.I. 9419397 - EARNED INCOME AND EXEMPT INCOME FOR RRSP

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 an Indian who receives only amounts which are exempt under section 81 can make a contribution to an RRSP and escape Part X.1 tax.

Position TAKEN:

No.

Reasons FOR POSITION TAKEN:

Wording of 146(1)(c), section 81 and 204.2(1.1) and confirmed that Business & Property Income and Exempt Orgs. Section (Murray Brake) agreed with our interpretation.

			August 3, 1994

	Victoria District Office	Head Office
G. R. Frolek	Rulings Directorate
	Director	P. Spice
(613) 957-8953
	Attention:  Diana Jamison
	            Client Assistance
			941939

Registered Retirement Savings Plan (RRSP): Earned Income and Amounts Exempt Under Section 81

This is in reply to your facsimile transmission of March 28, 1994, in which you ask us to reconcile our directorate's technical interpretations of March 22, 1991 (910659), and December 21, 1992 (923135), concerning the above-noted topic. We apologize for the delay in replying. This will confirm that the earlier interpretation is correct and that if an amount is exempt under section 81, it cannot be income for the purpose of paragraph 146(1)(c) of the Income Tax Act. Unless as otherwise stated all references to this statute are to the Income Tax Act S.C. 1970-71-72, c. 63 as amended, consolidated to June 10, 1993 - the "Act".

Your query relates to the liability of an Indian who contributes to an RRSP but has no earned income and, therefore, is subject to Part X.1 tax in respect of a cumulative excess amount in excess of $8000. The return is required to be filed and the tax paid within 90 days after the end of the year in which the tax liability arose. The Minister may waive the tax pursuant to subsection 204.1(4), and the late filing penalties and interest may be waived for years after 1984 in accordance with subsection 220(3.1) of the Act. The filing of the return for years after 1991 may be waived under subsection 220(2.1) of the Act.

If the Minister waives the tax, the annuitant will be required by paragraph 204.1(4)(b) to withdraw the amounts out of the RRSP. These amounts will be included in income under subsection 146(8) of the Act; however, a deduction, to the extent provided by subsection 146(8.2), may be available.

You will have to determine whether the prerequisites for the exercise of these relieving provisions have been met in the situation with which you are dealing.

We trust the confirmation of our interpretation and the foregoing information is helpful.

for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch