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:
Taxation of amounts withdrawn from an RRSP by a status Indian. The RRSP is located off-reserve, the amounts in the RRSP relate to amounts transferred from an RPP and the amounts in the RPP related to tax-exempt income.
Position TAKEN:
The amounts withdrawn from the RRSP should be exempt, since they related to RPP amounts which related to tax-exempt income. If, subsequent to the transfer from the RPP, contributions had been made to the RRSP based on income that is taxable, the exemption would have to be prorated.
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 20, 1995
Surrey Taxation Centre HEADQUARTERS
T1 Processing M. Azzi
Attention: J. Brady 957-8953
7-950258
Status Indians Exempt Income
This is in reply to your memo of January 24, 1995 regarding the taxation of status Indians with respect to child support payments, amounts withdrawn from an RRSP and investment income from a trust. The issues regarding child support payments and investment income from a trust are presently under review and will be addressed under separate cover at a later time. With respect to the RRSP, we understand that it is located off-reserve, that the amounts in the RRSP relate to amounts transferred from an RPP and that the amounts in the RPP related to tax-exempt income.
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.
The Department's previous position was that payments out of an RRSP should be exempt from tax, if they were made from an institution whose head office was located on a reserve. 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 RPP 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 situation described in your memo, the amounts withdrawn from the RRSP should be exempt, since they related to RPP amounts which related to tax-exempt income. If, subsequent to the transfer from the RPP, contributions had been made to the RRSP based on income that is taxable, the exemption would have to be prorated as explained above.
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
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