20 January 1995 External T.I. 9430135 - WITHHOLDING TAX ON LIF

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 ISSUE:

Whether withholding rates used on Life income fund payments should be based on the monthly payment or on the total payments made during a year.

Position TAKEN:

On the monthly payment.

Reasons FOR POSITION TAKEN:

A LIF is a RRIF for ITA and withholding on RRIF is established on each payment (5-922522)

		5-943013
XXXXXXXXXX		L. Roy

Attention: XXXXXXXXXX

January 20, 1995

Dear Sirs:

Re: Computation of Withholding Tax from Life Income Funds ("LIF")

This is in reply to your letter of July 26 1994 in which you requested clarification on the withholding tax requirements with respect to a LIF.

LIF, which are governed by provincial law, are generally registered as registered retirement income funds ("RRIF") pursuant to the Income Tax Act, but are subject to additional rules contained in the provincial legislation.

Therefore, withholding tax requirements with respect to RRIF payments are applicable on LIF payments. The yearly minimum amount that is required to be paid to a taxpayer under a RRIF is not subject to withholding tax. However, withholding is required with respect to payments in excess of the minimum amount out of a RRIF.

The withholding rates are as follows, depending on the amount of the payment:

		Amount	Tax Rate

	Less than $5,000		10%

	$5,000 - $15,000		20%

	More than $15,000		30%

It is the Department's position that upon an election by a taxpayer to receive in excess of the minimum amount from a RRIF in a taxation year, subsequent payments during the year would be "blended" payments with the appropriate portions being considered "minimum amount" and "elected excess amount".

By way of illustration, if we assume a taxpayer has elected on January 1 to receive $46,800, before tax, during a taxation year, with the minimum amount determined to be $10,000, then each monthly payment of $3,900 would comprise a blended payment consisting of a minimum amount of $10,000/12 or $833.33 and an excess amount of $36,800/12 or $3,066.67. Each payment would therefore attract $306.67 ($3,066.67 x 10%) withholding tax for a total of $3,680 for the year.

If the taxpayer does not elect until later in the year to receive in excess of the minimum amount, consistent with the foregoing, it is the Department's position that withholding at source does not apply until such election has been made.

The foregoing opinions are not rulings and, in accordance with the guidelines set out in Information Circular 70-6R2 dated September 28, 1990, are not binding on the Department.

We trust the above comments will be of assistance to you.

Yours truly,
for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch