22 September 1999 External T.I. 9911695 - NISA RECEIPTS-DEEMED DEPOSITS&WITHDRAWALS

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: Whether allowing farmer's who participate in NISA program to exercise more than one deposit/withdrawal option affects the taxation of amounts withdrawn; whether participants who transfer funds to Fund No. 1 from Fund No. 2 can transfer the funds back later.

Position: All amounts paid out of Fund No. 2 whether as a withdrawal or transfer are included in income. There is no provision to allow a deduction for amounts paid into Fund No. 2

Reasons: Similar position taken on other cases

NISA Administration
Agriculture and Agri-Food Canada
P.O. Box 6100 Wayne Antle
Winnipeg, MB 5-991169
R3C 3A4

Attention: Meaghan McMurray

September 22, 1999

Dear Ms. McMurray:

Re: Tax Implications of Changes to Deposit/Withdrawal Options

We are writing in response to your memo dated April 30, 1999 in which you request our comments on the income tax implications of several scenarios in which farmers, who are participants in the Net Income Stabilization Account ("NISA") program, exercise more than one deposit/withdrawal option in a stabilization (tax) year.

Subsection 12(10.2) of the Income Tax Act (the "Act") requires that all amounts paid at a particular time in the year out of NISA Fund No. 2 be included in income, unless they were required to be included in income in the current or prior years under certain other provisions in the Act. Amounts transferred from Fund No. 2 to Fund No. 1 would be considered to be paid out of NISA Fund No. 2 and, accordingly, must be reported in the year in which the transfer takes place.

In three of your examples, the participant makes a deposit in the year, and then withdraws funds near the end of the year, or early in the next year. In accordance with subsection 12(10.2) of the Act, the participant would be required to report the amounts withdrawn from Fund No. 2 in the year in which they are withdrawn. The deposits made earlier would not affect the taxability of the amounts withdrawn from Fund No. 2.

The remaining examples deal with a participant making a deemed deposit and withdrawal in the year. Our understanding is that a deemed deposit and withdrawal involves a transfer of amounts from Fund No. 2 to Fund No. 1. Later in the year, or early in the next year, the participant wishes to make an actual deposit to Fund No. 1 and reverse the earlier transfer. As noted above, all amounts paid out of Fund No. 2, with the exception of certain amounts included in income under other provisions of the Act, must be included in income in the year paid. Therefore, in these examples, the participant would be required to report the amounts transferred from Fund No. 2 to Fund No. 1, as well as any actual withdrawals, in the year in which the transfers or withdrawals takes place. There is no provision in the Act to allow the participant to receive a deduction for transferring the funds back to Fund No. 2. Since the participant is taxable an amounts paid out of Fund No. 2, the amounts should not be transferred from Fund No. 1 back to Fund No. 2 upon receipt of the actual deposit.

XXXXXXXXXX

As noted above, it may not be desirable for participants to deposit amounts into NISA Fund No. 2 since these amounts would be taxable when paid out of this fund.

We trust that our comments will be of assistance to you.

Yours truly

R. Albert, C.A.

for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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