26 March 1998 External T.I. 9801685 - RRIF ESTONIA HUNGARY ICELAND LATVIA

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: Part XIII tax rates on payments under a RRIF (in particular periodic pension payments under a RRIF) made to non-residents.

Position: See details in the letter.

Reasons: Position reflects provisions of the relevant Income Tax Conventions and provisions of the Income Tax Conventions Interpretation Act (and the proposed clarifying amendments to the ITCIA dated Feb. 24/98); and the position is in line with the Department of Finance’s views. For additional details, see file #941455 together with the two Issue Sheets and Charts 1 and 2 attached to that file.

								980168
XXXXXXXXXX                                  		G. Middleton
(613) 957-2122

Attention: XXXXXXXXXX 

March 26, 1998

Dear Sirs:

This is in reply to your letter of January 19, 1998 concerning the non-resident withholding tax rates on periodic payments from a Registered Retirement Income Fund (“RRIF”) which are subject to Part XIII tax under paragraph 212(1)(q) of the Income Tax Act (the “Act”). In particular, you inquired about the tax rate on such RRIF payments made to residents of Estonia, Hungary, Iceland, Italy, Latvia, Lithuania and Trinidad & Tobago.

For the purposes of each of the seven Income Tax Conventions (the “Conventions”) which Canada entered into with the above mentioned countries, all payments (periodic or lump sum) out of RRIFs are considered to be pensions.

We have also assumed that the periodic RRIF payments referred to in your letter are “periodic pension payments” (“PPPs”) as defined in section 5 of the Income Tax Conventions Interpretations Act and thus such a RRIF payment is a PPP for the purposes of each of the seven Conventions.

The tax rates on a PPP from a RRIF under the seven Conventions are summarized below:

• Under the Convention with Trinidad & Tobago, the tax rate on a PPP from a RRIF is 15%.
• Under the five Conventions with Estonia, Hungary, Iceland, Latvia and Lithuania, the tax rate on a PPP under a RRIF is the lesser of:

(a) 15% of the gross amount of the PPP; and

(b) the tax rate as determined by reference to the amount of tax that would have been payable under Part I of the Act in respect of the total amount of PPPs received in the year if the recipient had been a resident of Canada for the year.

• Under the Convention with Italy, Canada may tax pensions (including RRSP and RRIF payments plus CPP and OAS payments), paid to a resident of Italy but only to the extent that the total amount of pensions paid in any taxation year exceed the greater of $10,000 or twelve million Italian liras.

In the case of PPPs, the Canadian tax cannot exceed the lesser of:

(a) 15% of the gross amount of the PPP; and

(b) the tax rate as determined by reference to the amount of tax that would have been payable under Part I of the Act in respect of the total amount of PPPs received in the year if the recipient had been a resident of Canada for the year.

Examples

The following examples illustrate the computation of the Canadian tax liability on pension payments (including RRIF and RRSP payments plus CPP and OAS payments) made to a resident of Italy in a calendar year under the Convention with Italy.

I. If the total amount of the pension payments is less than the greater of $10,000 or twelve million Italian liras, no tax is payable.

II. If the pension payments include only PPPs and the gross amount of the PPPs in the year exceeds the greater of $10,000 or twelve million Italian liras, the Canadian tax payable on the PPPs is the lesser of:

(i) of the amount by which the gross amount of the PPPs exceeds the greater of $10,000 or twelve million Italian liras; or

(ii) of the gross amount of the PPPs.

III. If the pension payments include both a lump-sum pension payment and PPPs, the lump-sum pension payment is considered to have been paid first.

(i) If the lump-sum pension payment exceeds the greater of $10,000 or twelve million Italian liras, the tax payable is 25% of the amount by which the lump-sum pension payment exceeds the greater of $10,000 or twelve million Italian liras plus 15% of the gross amount of PPPs.

(ii) If the lump-sum pension payment is less than the greater of $10,000 or twelve million Italian liras, there is no tax payable on the lump-sum payment and it will be necessary to calculate the tax payable on the PPPs. For example, assume a resident of Italy is paid a lump-sum pension payment of $8,000 and PPPs payments of $14,000 in the year and assume that the greater of $10,000 or twelve million Italian liras is $10,000.

The tax payable on the lump-sum pension payment would be nil; and the tax payable on the PPPs would be $2,100 which is calculated as the lesser of:

– $2,100. This is the PPPs of $14,000 multiplied by the tax limitation rate of 15%. or

– $3,000. This is 25% of $12,000; the amount by which the PPPs of $14,000 exceeds $2,000 (i.e. the remainder of $10,000 less the lump-sum pension payment of $8,000).

IV. The tax on PPPs set out in examples II and III may be further reduced if the tax on PPPs as calculated in (b) above is less than the tax on PPPs in the examples.

We trust our comments will be of assistance to you.

Yours truly,
for Director
Reorganizations and International Section
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch