20 March 1996 External T.I. 9526965 - PERIODIC PENSION PAYMENTS UNDER A RRIF (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.

Principal Issues:

Meaning of a "periodic pension payment" in section 5 of the Income Tax Conventions Interpretation Act (the "ITCIA") for payments out of a RRIF.

Position:

See example in letter.

Reasons:

Based on wording in the legislation.

									952696
XXXXXXXXXX							G. Middleton
(613) 957-2122

Attention: XXXXXXXXXX

March 20, 1996

Dear Sirs:

We are replying to the third question in your letter of June 27, 1995 in which you requested clarification in respect of the Canadian non-resident withholding tax on payments made under a registered retirement income fund ("RRIF") to a non-resident. The other questions set out in your letter were answered in our letter of October 5, 1995.

The definition of a "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 the payment and in the calendar year, exceeds the greater of:

(i) twice the amount that would be the "minimum amount" under the RRIF for the year, and

(ii) 10% of the amount that would be the fair market value ("FMV") of the property held in connection with the RRIF at the beginning of the year.

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

We have prepared the following example to illustrate the types of payments which represent a "periodic pension payment" under a RRIF.

Assume a U.S. resident is an annuitant under a RRIF and that he receives a payment of $3,000 from the RRIF on the 15th day of each month in 1996. It is also assumed that the "minimum amount" of this RRIF is $9,500 for 1996 and that the fair market value of the RRIF is $125,000 at the end of 1995.

The amounts calculated under (i) and (ii) on page 1 for this person's RRIF would be $19,000 (i.e. twice the "minimum amount of $9,500) and $12,500 (i.e. 10% of the FMV of the RRIF), respectively. The greater of these amounts is $19,000.

Each payment under the RRIF must be reviewed to determine whether or not it is excluded from being a "periodic pension payment" under paragraph (c) of the definition of this term in section 5 of the ITCIA.

In our opinion, each of the $3,000 RRIF payments for the first six months of 1996 (i.e. January to June totalling $18,000) is a "periodic pension payment" as defined in section 5 of the ITCIA and qualifies as a periodic pension payment referred to in paragraph 2(a) of Article XVIII of the Canada-United States Income Tax Convention (1980) (the "U.S. Convention"). The tax rate on these RRIF payments would be reduced from the normal non-resident tax rate of 25% to 15% by virtue of such paragraph.

With respect to the $3,000 RRIF payments for the last six months of 1996 (July to December), it is our opinion that each of these monthly payments would not be a "periodic pension payment" as defined in section 5 of the ITCIA since the total of all payments under the RRIF in 1996 at the time of these particular payments, or before the time of these particular payments, exceeds the greater of the amounts (i.e. $19,000) calculated above for this RRIF. Accordingly, the $3,000 RRIF payments for July to December of 1996 would not qualify as periodic pension payments for the purposes of paragraph 2(a) of Article XVIII of the U.S. Convention and these payments would be subject to the general non-resident tax rate of 25% under paragraph 212(1)(q) of the Act.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch