12 March 1998 Internal T.I. 9728147 - PART 1.2 TAX ON OLD AGE SECURITY BENEFITS

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: Is withholding required under Part 1.2 where a an OAS benefit payment is made?

Position: YES

Reasons: Total liability for taxes must be taken into account

					March 12, 1998

	EDMONTON TSO	HEADQUARTERS
	Client Services Division	C. Tremblay
	Attention: Heather Coté	613) 957-2744
	                 Team Coordinator
		972814

Part 1.2 Tax on Old Age Security (“OAS”)Benefits

We are writing in response to your memorandum of September 26, 1997, wherein you requested we review the policy and procedures with respect to waiver requests from individuals to reduce their withholding tax on OAS benefits.

In your view, since subsection 180.2(3) of the Act provides that withholdings from OAS benefits are held”...on account of the individual tax payable under this Part for the year...”, where the individual demonstrates that there will be no Part1.2 tax payable for the current year, any such withholdings must be on account of an amount payable under another Part of the Act. If your interpretation is correct, you believe that the client should be allowed to reduce their withholdings on the OAS.

Generally, in our view, the provisions of subsection 180.2(3) of the Act requires that the calculations under 180.2(4) of the Act are necessary where an OAS benefit payment is made. Subsection 180.2(4) of the Act refers to the “base taxation year” which is defined in subsection 180.2(1) of the Act as (a) where the month is any of the first 6 months of a calendar year, the taxation year that ended on December 31 of the second preceding year and (b) where the month is any of the last 6 months of a calendar year, the taxation year that ended on December 31 of the previous calendar year. Accordingly, a prior year is always relevant to the individuals who are subject to withholding on their OAS benefits. Subsection 180(6) of the Act allows other provisions to apply to Part 1.2 of the Act and among them is subsection 153(1.1) of the Act. Subsection 153(1.1) of the Act allows the Minister, after being satisfied that the withholding of the amount otherwise required to be deducted from a payment would cause “undue hardship”, to determine a lesser amount. The Minister has set a policy to determine “undue hardship” under directive BPD 97-01, and at page 1, it is stated that relief will not be granted under Part 1.2 where a reduction of withholding of the OAS benefit payment would increase the expected balance owing, when the return for the current tax year is filed. At page 2, the note further states “If the tax deductions required to be withheld from the client’s OAS exceed the expected “OAS repayment” for the current year, the excess is considered to be “regular” income tax deductions.”

We have reviewed directive BPD 97-01, dated June 17, 1997, and we note that on page 2 of the directive that the policy for considering “undue hardship” is explained. Factors that are considered include:

• The client’s current year income will be significantly lower than the base year income;
• The client’s estimated tax deducted for the full year, plus installments already made, will exceed the total expected tax liability for the current year;
• Any voluntary tax deductions have already been reduced to zero; and

There are no other assessed or pending debts.

Further, the total liability must be taken into account when considering the waiver request and a change would not be approved if it will result in an increased “balance owing” when the individual files an income tax return for the current year. It cannot be considered “undue hardship” to require individuals to pay monthly installments of tax that will be owing when the return is filed. In addition, there must be no arrears outstanding that all required returns must have been filed. The objective is to reduce actual liability for the individual, without prejudicing the Department’s position with respect to the collection of potential year end tax liabilities through source deductions.

Accordingly, in our view, although no Part 1.2 tax may be payable in a current year, the provisions of subsection 180.2(3) of the Act still require that an amount be withheld from the OAS payment. Unless the individual meets the policies established by the Minister for “undue hardship”, in our view, the withholding provisions will apply regardless of whether Part 1.2 tax is being withheld to offset projected tax payable under Part 1 tax.

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