6 August 1999 External T.I. 9911545 - BOOK ROYALTIES, EARNED INCOME

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 docuinent, 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 ininistère.

Principal Issues: Can a writer/researcher include royalties for his books in his earned income, within the meaning assigned by subsection146(1) of the Act, for RRSP purposes?

Position: Yes.

Reasons: The provisions of subparagraph 146(1 )(a) (iii) of the definition of earned income clearly provide that such royalties are included in the taxpayer's earned income.

XXXXXXXXXX						991154
M. P. Sarazin

August 6, 1999

Dear Sir:

Re: Royalties on Books and Earned Income

This is in reply to your letter dated April 19, 1999, wherein you requested clarification as to why your royalty income earned as a writer/researcher in respect of your books does not qualify as earned income for the purposes of computing your RRSP deduction limit. The expressions "earned income" and "RRSP deduction limit" have the meanings assigned by subsection 146(1) of the Income Tax Act (the "Act").

Comments

In your letter you have outlined what appears to be an actual fact situation related to completed transactions. We must advise you that the review of such transactions falls within the responsibility of tax services offices. However, we can provide you with the following general comments.

The following amount is included in "earned income" by virtue of subparagraph (a) (iii) of the definition of"earned income" in subsection 146(1) of the Act:

the taxpayer's income for a period in the year throughout which the taxpayer was resident in Canada from ... property, where the income is derived from the rental of real property or from royalties in respect of a work or invention of which thetaxpayer was the author or inventor (emphasis added),

Consequently, where a taxpayer is an author, any royalties derived in respect of the taxpayer's work as an author will be included in the computation of the taxpayer's earned income for the purposes of determining the taxpayer's RRSP deduction limit. The fact that royalty income reported on a T5 has to be included on line 104 or line 121 of a taxpayer's personal income tax return should not result in the amount being excluded from the taxpayer's earned income for the purposes of determining his or her RRSP deduction limit. In this regard, we refer you to the chart titled "1998 RRSP deduction limit" on page 11 of the enclosed Guide (RRSPs and Other Registered Plans for Retirement 1998) where it shows that the royalties for work authored which are included in line 104 are included in the computation of earned income.

With respect to your request for an amendment to your RRSP deduction limit, we have been advised by the Individual Returns and Payments Processing Division that your personal income tax returns have already been reviewed and reassessed to reflect the appropriate earned income. Please note for future reference that requests for such

adjustments should be directed to your tax services office.

Yours truly,

Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate