26 July 1999 External T.I. 9909855 - RRSP FOR ITALIAN RESIDENT

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:

1) whether non-resident can open an RRSP;
2) tax rates applicable to Italian-resident recipient of RRSP payments

Position:

1) Yes
2) rates under Canada-Italy Tax Convention

Reasons:

1) Nothing in Act restricts residence of RRSP annuitant - Registered Plans confirms no prohibition against registering such a plan. N.B. RRIF cannot be registered unless first annuitant has a SIN - definition of “RRIF”;

2) Rates vary depending on amount received and whether "periodic pension payment", lump-sum or combination of both.

XXXXXXXXXX  	990985
		957-2098
Attention:  XXXXXXXXXX 

July 26, 1999

RE: Payments out of a Registered Retirement Savings Plan (“RRSP”) to a Resident of Italy

This is in reply to your facsimile transmissions of April 13 and April 21, 1999, in which you ask whether an RRSP may be established for a resident of Italy who wishes to have an amount transferred on a tax-deferred basis from her Canadian-resident husband’s (or former husband’s) RRSP pursuant to paragraph 146(16)(b) of the Income Tax Act (the “Act”). You also ask whether the receipt of amounts out of the RRSP by the resident of Italy would be subject to a lesser rate of withholding tax pursuant to the Canada-Italy Income Tax Convention (the “Convention”).

The Act does not require that an annuitant of an RRSP be resident in Canada. We have confirmed with the Registered Plans Division of the Department that a financial institution that issues a retirement savings plan for a non-resident may register such a plan under the Act. Note however, that a registered retirement income fund cannot be registered unless the annuitant provides his or her Social Insurance Number to the carrier - see the definition of “registered retirement income fund” in subsection 146.3(1) of the Act.

With respect to your second question, under the Convention Canada may tax RRSP payments made to a resident of Italy but only to the extent that the total amount of RRSP payments paid in any taxation year exceeds the greater of $10,000 and twelve million Italian liras.

In the case of “periodic pension payments” (“PPPs”) as defined in section 5 of the Income Tax Conventions Interpretations Act, the Canadian tax cannot exceed the lesser of (i) 15% of the gross amount of the PPP; and (ii) the tax rate as determined by reference to the amount of tax that would have been payable under Part 1 of the Act in respect of the total amount of PPPs received in the year if the recipient has been a resident of Canada for the year.

The following illustrate the computation of Canadian tax liability on RRSP payments made to a resident of Italy in a calendar year under the Convention with Italy.

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

2. If the pension payments include only PPPs and the gross amount of the PPPs in the year exceeds the greater of $10,000 and twelve million Italian liras, the Canadian tax payable on the PPPs is the lesser of (a) the amount by which the gross amount of the PPPs exceeds the greater of $10,000 or twelve million Italian liras; and (b) the gross amount of the PPPs.

3. 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.

3.1 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 and twelve million Italian liras plus 15% of the gross amount of the PPPs.

3.2 If the lump-sum pension payment is less than the greater of $10,000 and 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 of $14,000 in the year and assume that the greater of $10,000 and 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 (i.e., the lesser of (a) $2,100 - PPPs of $14,000 multiplied by the reduced tax rate of 15%; and (b) $3,000 - 25% of $12,000 which is the amount by which the PPPs of $14,000 exceed $2,000. The $2,000 is the remainder of the $10,000 exemption minus the lump-sum payment of $8,000.

The tax on the PPPs set out in examples 3.1 and 3.2 may be further reduced if the tax on PPPs as calculated in (ii) above is less than the tax on the PPPs in the examples.

We trust this information assists.

Yours truly,

P. Spice
for Director
Financial Industries Division
Income Tax Rulings &
Interpretations Directorate

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