7 November 1996 Internal T.I. 9628137 - TAX TREATMENT OF RRIF AND CPP PAYMENTS TO AN INDIAN

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:

The tax treatment of RRIF and CPP payments to a status Indian.

Position TAKEN:

As we were not provided with information on whether any portion of the payment from the RRIF relates to income that was exempt, we cannot determine whether any portion of this payment is exempt.

As regards to the CPP benefits, assuming that the Indian's employment income from the XXXXXXXXXX was exempt from tax, the calculations provided by the Indian would be a reasonable allocation of the benefits between the exempt and non-exempt portion. The taxpayer allocated the benefits based on her contributions to the CPP throughout her career (she submitted a CPP Statement of Contributions, identified the contributions which related to employment income with the band and submitted a letter from the band stating that she was employed by the band for the relevant years).

Reasons FOR POSITION TAKEN:

Based on Williams, the Department's stated position is that, when payments from an RRSP or a RRIF 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 CPP payments, RPP benefits and UI benefits, as reflected in the Indian Act Exemption for Employment Income Guidelines.

								November 7, 1996

	SUDBURY TAX CENTRE				HEADQUARTERS
	Enquiries and Adjustments		M. Azzi
(613) 957-8953
	Attention: Barry McWhinnie
								7-962813

Taxation of RRIF and CPP Payments to a Status Indian

This is in reply to your memo of August 22, 1996, requesting our views on the tax treatment RRIF and CPP payments to XXXXXXXXXX, a status Indian.

We understand that XXXXXXXXXX received $XXXXXXXXXX and that she will not be receiving any other amount from the RRIF. We also understand that she began receiving monthly CPP benefits in XXXXXXXXXX The CPP Statement of Contributions submitted indicates that, except for XXXXXXXXXX contributed to the CPP (on employment earnings) in every year from XXXXXXXXXX inclusive. She indicates that she has not contributed to the CPP since XXXXXXXXXX also indicates that, for the years XXXXXXXXXX, inclusive, she was employed off reserve (and, we assume, that the employment income earned during these years was not exempt from tax). The total CPP contributions for these years amounted to $XXXXXXXXXX For the years XXXXXXXXXX, inclusive, we understand that XXXXXXXXXX was employed by the XXXXXXXXXX The total CPP contributions for this period amounted to $XXXXXXXXXX therefore feels that XXXXXXXXXX of her CPP benefits should be subject tax and that, consequently, XXXXXXXXXX of the benefits would be exempt.

Our Comments

The decision of the Supreme Court of Canada in Williams (92 DTC 6320), has required the Department to review its interpretation of the scope of the exemption from income taxation provided under the Indian Act. One general direction provided in Williams was that "an overly rigid test which identified one or two factors 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 and RRIFs. As a result of our review, we are of the view that when payments from an RRSP or a RRIF 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 CPP payments, RPP benefits and UI benefits, as reflected in the Indian Act Exemption for Employment Income Guidelines issued in June, 1994.

As we have not been provided with information on whether any portion of the payment from XXXXXXXXXX RRIF relates to income that was exempt, we cannot determine whether any portion of this payment is exempt. As regards to the CPP benefits, assuming that XXXXXXXXXX employment income from the XXXXXXXXXX was exempt from tax, in our view, her above calculations would be a reasonable allocation of the benefits between the exempt and non-exempt portion.

Finally, please note that the information provided seems to imply that XXXXXXXXXX employment duties with the XXXXXXXXXX were performed on reserve; however, this is not explicitly stated. If they were in fact performed on reserve, in our view, her employment income from the XXXXXXXXXX would have been exempt from tax.

We trust that these comments will be of assistance.

R. Albert
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch