4 October 1994 External T.I. 9423995 - NISA

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.

NISA Administration
P. O. Box 6100
Winnipeg, Manitoba					942399
R3C 3A4							A. M. Brake

Attention: Mitch Davies

October 4, 1994

Dear Sirs:

Re: Net Income Stabilization Account ("NISA")

This is in reply to your letter of September 2, 1994, asking for our comments on three situations as follows:

No. 1

A participant was issued a cheque in 1993 on Fund 2. The cheque was returned uncashed in 1994 and cancelled. The funds never left the Fund 2 account. You propose to amend the 1993 T5 slip to reflect a decrease in the amount taxable in respect of the returned cheque. Alternatively, you ask whether the overstated amount in 1993 be offset against amounts paid in 1994.

No. 2.

In 1993 funds are transferred out of Fund 2 into Fund 1. Subsequently, in 1994 the participant presents the same amount and you reverse the original deposit and the amount is returned to Fund 2. You suggest that the taxable benefit be negated in 1993. Otherwise, you feel the overstated 1993 amount should be deducted from the amount of the 1994 payment in arriving at the taxable amount to be reported for 1994.

No. 3

In 1993 a participant receives an overpayment of $1000 which is recovered in 1994 by reducing the $3200 amount otherwise payable resulting in a net payment of $2200. You feel the 1994 T5 slip should reflect the net amount of $2200.

Our comments

No. 1

If the participant requested that the amount be paid but changed his mind after the cheque was presented to him and he was otherwise entitled to receive the amount, it would be our position that the amount should be taxed in 1993. The fact that he did not cash the cheque does not necessarily mean that the amount was not paid to him. Also, the amount should not have been returned to Fund 2 because when the amount is eventually paid to him, subsection 12(10.2) of the Income Tax Act (the "Act") would require that the entire amount be brought into income. Should it be that the amount was erroneously paid to him in 1993, we would not object to amending the 1993 T5 slip. Otherwise, 1993 should stand and the amount in question should be removed from Fund 2 and returned to the participant without being taxed a second time.

No. 2

Amounts paid out of Fund 2 are taxable as are amounts transferred from Fund 2 to Fund 1 as amounts in the latter are available to the taxpayer with no tax consequences. If the transfer was erroneously made we would not be opposed to correcting the error. However, if in fact the amount in question could be withdrawn by the participant from Fund 1 after the transfer was made from Fund 2, it would be our position that the transferred amount would be taxable at the time of the transfer and that after receiving the deposit from the participant there should not have been a transfer from Fund 1 back to Fund 2 because amounts out of Fund 2 are taxable by virtue of subsection 12(10.2) of the Act unless the payment or transfer is considered to be a "B" amount described therein.

No. 3

We agree that the net amount of the payment should be reported on the T5 slip for the current year.

We trust that you will find our comments helpful.

Yours truly,

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