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:
How to treat an RRSP withdrawal made by a status Indian.
Position TAKEN:
In this particular scenario, treat RRSP withdrawal not as an RRSP but as an investment vehicle. Indian did not take a deduction for the purchase so principal withdrawal will not be taxed. Interest element will be treated as interest income. Need to consider all connecting factors. Facts not conclusively established yet, ie., source of funds not resolved, so treat as taxable.
Reasons FOR POSITION TAKEN:
Facts of particular scenario. Guidance provided in Williams to consider connecting factors.
May 11, 1995
Appeals & Referrals Division HEADQUARTERS
Don Beamish Roberta Albert
Section Chief (613) 957-2100
Attention: Alex Lowe
951284
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Interest Income Received by a Status Indian
We are replying to your memo of May 4, 1995 concerning a request for an opinion relating to the above-noted status Indian which you received from Toronto Designated Appeals.
Facts
Our understanding of the facts is as follows:
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You believe that the portion of the assessment relating to the principal amount should be withdrawn. However, you are of the opinion that the interest income should not be exempt since this would allow status Indians to simply choose institutions that ensure exemption without regard to the source of the funds.
One general direction provided by the Supreme Court 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 the 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 recently 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 adopted for registered pension plan benefits which was stated in the Indian Act Exemption for Employment Income Guidelines. We note that in Fact 4 above the taxpayer contends that the funds for this RRSP were obtained from a farming operation carried out on reserve, the income from which was treated as exempt. If this is in fact true, then, based on our views, the total RRSP withdrawal should be exempt.
However, in this particular situation, we are in agreement with the decision to withdraw the assessment relating to the $30,000 principal amount of the RRSP withdrawal as the taxpayer did not deduct the RRSP contribution. In effect, this particular investment will not be treated as an RRSP. In our view, the $2,100 interest income relating to this particular RRSP should be treated as investment income rather than as income from an RRSP.
With respect to investment income, it is our view that the location of a savings account on a reserve would not in itself be sufficient to exempt the interest earned thereon. Similarly, the fact that the purchase of a guaranteed investment certificate or the investment in a term deposit takes place on reserve would not in itself be sufficient to exempt the interest earned thereon. The connecting factors specific to an individual investor will have to be examined. In this particular case, the taxpayer lives on reserve, makes the investment at a branch on reserve and contends that the funds for the investment came from exempt income. Should his contention in fact be true, then, in our view, this taxpayer has strong factors connecting the income to the reserve. However,
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we agree that the interest income should not be treated as exempt.
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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