6 November 1997 External T.I. 9728495 - STATUS INDIAN, RETIRING ALLOWANCE TRANSFER TO RRSP

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 ISSUE:

When a status Indian receives a retiring allowance which is partially tax free, can the taxable portion be transferred to an RRSP.

Position:

Yes:

Reasons:

There is no requirement to prorate the number of years for which a transfer can be made. The amount deductible will be limited by the amount brought into income as well as the number of years worked. This is comparable to cases where an employee who has worked for a related foreign affiliate of a Canadian employer can count all years with the related employer.

TO BE FAXED TO:

Royal Canadian Mounted Police				972849
1-613-993-0795						W.C.Harding

Attention: Ronnie Hogan

November 6, 1997

Dear Sirs:

Re: Transfer of retiring allowances on behalf of status Indians

This is in reply to your facsimile dated October 27, 1997, in which you asked for clarification on the amount of a retiring allowance that may be transferred to an RRSP in respect of the employment of a status Indian.

You provided us with the example of an employee who has worked for 80% of his career on a reserve and 20% off of a reserve. Accordingly, following the accepted proration of earnings, the employee's taxable portion of a $20,000 severance entitlement will be $4,000 while the exempt portion will be $16,000. You have asked if the full $4000 may be transferred into an RRSP.

Subsection 60(j.1) of the Income Tax Act (the "Act") does not limit the amount that may be transferred to an RRSP. Instead, the provision limits the amount that may be deducted from income if it is in fact transferred. In the example provided, if we assume the employee has worked for the same employer for two or more years, the amount eligible to be deducted will be limited to the amount that must be reported as income or $4,000. Furthermore, in accordance with subsection 100(3) of the Income Tax regulations, no withholding will be required on the eligible amount if it is transferred directly to an RRSP.

We trust these comments will be of assistance to you.

Yours truly,

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