15 December 1994 External T.I. 9420945 - PART XIII TAX ON RRIF PAID TO U.S. PERSON (7224-8)

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.

		942094
XXXXXXXXXX	G. Middleton

Attention: XXXXXXXXXX

December 15, 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 made from a Registered Retirement Income Fund ("RRIF") to a resident of the United States (the "U.S.").

Paragraph 2(a) of Article XVIII of the 1980 Canada-U.S. Income Tax Convention (the "Treaty") 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;......"

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 a payment 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 FMV 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 (the "Act") were applicable with respect to all RRIFs.

The "minimum amount" under a RRIF for a calendar year is calculated pursuant to paragraph 146.3(1)(b.1) of the Act and section 7308 of the Income Tax Regulations (the "Regulations"). As indicated in those provisions, it is necessary to know an annuitant's age and the FMV of the annuitant's RRIFs at the beginning of a particular year for the purposes of calculating the "minimum amount.

For example, if a RRIF is worth $1,000,000 at the beginning of a particular year and its annuitant is age 71 in the year, the "minimum amount" under subparagraph 146.3(1)(b.1)(iii) would likely be $73,800 calculated as the FMV of the RRIF ($1,000,000) multiplied by the prescribed amount in subsection 7308(3) of the Regulations (.0738). The amounts calculated for the purpose of determining a "periodic pension payment" in paragraphs (a) and (b) above would then be $147,600 (two times the "minimum amount" of $73,800) and $100,000 (10% times the FMV of the RRIF worth $1,000,000), respectively. Therefore, in this particular example, a "periodic pension payment" would not include a payment at any time in the particular calendar year under the RRIF where the total of all payments made under the RRIF at or before that time and in the year exceeds $147,600.

In response to your questions, the net result is as follows:

- If a payment out of a RRIF qualifies as a "periodic pension payment", as defined under section 5 of the ITCIA, and it is paid to a resident of the U.S., the Canadian non-resident withholding tax will be 15% of such amount pursuant to paragraph 2(a) of Article XVIII of the Treaty.

- Any payment under a RRIF which does not qualify as a "periodic pension payment" will generally be subject to the normal 25% non-resident withholding tax rate pursuant to paragraph 212(1)(q) of the Act.

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

Yours truly,

for Director
Reorganizations and Foreign Division
Rulings Directorate
Policy and Legislation Branch