30 April 1997 External T.I. 9705905 - EMBASSY EMPLOYEE RRSP CONTRIBUTIONS

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:

Information concerning RRSP contribution deductions for Canadian Embassy staff who are members of an RPP.

Position:

Provided general overview of law and relevant ITs and Guide concerning deductions for residents (actual or deemed) and non-residents taxed under 115(2)(c).

Reasons:

Persons who have "earned income" (in this case employment income while resident in Canada, and remuneration from employment by non-resident who was previously resident paid by person in Canada & not subject to tax in another country) can contribute to RRSP with limit reduced if participating in an RPP.

Canadian Embassy
501 Pennsylvania Ave., N.W.
Washington, D.C.		970590
U.S.A.                20001	

Attention: Ms Carol-Lynn Weimer
Benefits Coordinator

April 30, 1997

Re: Registered Retirement Savings Plan ("RRSP"): Deduction for Contributions Made by Residents and Non-Residents

This is in reply to your letter of February 28, 1997, in which you ask us to explain the RRSP contribution deduction available to employees of the Government of Canada in the United States. XXXXXXXXXX In our telephone conversation of March 19, 1997 (Spice/Weimer), you confirmed the following categories are those with respect to which you wish the information.

1.Those factually resident in Canada - includes those employees who have not severed their residential ties with Canada.

2. Those who are deemed resident in Canada - includes a Canadian citizen employed abroad who is

(a)a member of the Canadian Forces,

(b)an ambassador, minister, high commissioner, officer or servant of Canada who was resident in Canada immediately prior to employment by Canada,

(c)an agent-general, officer or servant of a province who was resident in Canada immediately prior to employment by the province.

3.Those who are deemed residents of Canada during employment - includes an individual who was factually resident in Canada for tax purposes immediately prior to taking the job with the Canadian Embassy in the United States who, after being hired, severed residential ties with Canada. This category would also include a person who severed residential ties with Canada and, immediately prior to being employed by the Embassy, was a deemed resident in Canada for purposes of the Act.

4.Those who while employed in the Embassy are non-residents of Canada for the purpose of the Act but fall within paragraph 115(2)(c) of the Act - includes an individual who had, in any previous year, ceased to be resident of Canada and who, after severing residential ties with Canada, became employed by the Government of Canada in the Canadian Embassy in Washington.

COMMENTS

XXXXXXXXXX employees identified in categories 1 through 4 above, who are factually resident in Canada, deemed resident in Canada or are non-resident and taxed in Canada in accordance with paragraph 115(2)(c) of the Act are all eligible to claim a deduction, within the rules set out in the Act, for contributions to an RRSP.

To elaborate, subsection 146(5) of the Income Tax Act (the "Act") generally provides that an individual may deduct from income for the year the lesser of 1) the amounts contributed to the individual's RRSP after 1990 or within 60 days of the year end and 2) the individual's "RRSP deduction limit" for the year. A similar deduction is provided by subsection 146(5.1) of the Act with respect to an individual's contribution to an RRSP of a person who was the individual's spouse at the time of the contribution. Note that the deduction for amounts contributed to both the individual's and the spouse's RRSPs cannot exceed the individual's RRSP deduction limit for the year.

You also indicate that all the employees in question are members of a registered pension plan ("RPP"). Participation in an RPP causes an individual's "RRSP deduction limit" to be reduced and therefore affects the amount that can be claimed as a deduction.

For more information on contributions to an RRSP or to a spouse's RRSP including a discussion of the "RRSP deduction limit" and the effect of participation in an RPP, please refer to the enclosed Interpretation Bulletins IT-124R6 ("Contributions to a Registered Retirement Savings Plan") and IT-307R3 ("Spousal Registered Retirement Savings Plans") and the enclosed 1996 RRSP and Other Registered Plans for Retirement Guide. In particular, with respect to your employees, please refer to paragraphs 5 through 9 of IT-124R6, the definitions of "earned income" and "pension adjustment" in the Glossary to IT-124R6 and Form T1023 in the Guide. Note that the Guide reflects changes to the "RRSP dollar limit" announced in recent Federal Budgets while the Glossary definition of this term in IT-124R6 does not.

We trust our comments and the enclosed publications will be of assistance to you. Additional copies of the publications can be obtained from the International Tax Services Office, by mail request to 2540 Lancaster Road, Ottawa, Ontario, K1A 0L9, fax request to (613) 941-2506 or phone request to 1-800-267-5177.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

Enclosures