19 February 1990 Income Tax Severed Letter AC59542 - RRSP and RRIF - Meaning of 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.

19(1) 5-9542

W.C. Harding
(613) 957-8953

February 19, 1990

Dear Sir:

This is in reply to your letter of February 3, 1990 requesting information concerning registered retirement savings plans ("RRSPs") and registered retirement income funds ("RRIFs").

Included with this letter is the Department's 1989 Pension and RRSP TaX Guide which should be of assistance to you. Chapter 3 beginning on page 15 of the guide deals with RRSPs in particular.

An RRSP may be funded in one of two ways; first, through the transfer of certain pension or profit sharing plan funds as discussed at page 20 of the guide, and second, through the contribution of "Earned Income" within limits as discussed in the Guide. The term "Earned Income" is explained on page 16 and may be calculated using the form provided on page 17. Interest on Canada Savings Bonds does not form part of earned income.

In response to your specific question we reply as follows:

• 1. An RRSP cannot be created through a transfer of existing savings such as Canada Savings Bonds. However, an RRSP can purchase such bonds with funds otherwise contributed to it or they can be used as part of a contribution of Earned Income to an RRSP.
• 2. Certain treaties may be worded in such a fashion that salary or wages paid by a foreign nation are excluded from income for Canadian tax purposes in which case no amount of such salary or wages could be included in earned income. In general, however, such salary or wages are included in "income" while an offsetting deduction is provided in computing "taxable income" for Canadian taxation.
• In this case, "earned income" will also include the salary or wages and a person could contribute, within the limits discussed in the guide, up to 20% of such salary or wages to an RRSP. It must be noted, however, that all amounts held in an RRSP will ultimately be subject to Canadian taxation, subject to any relevant convention provisions that may be applicable at the time of payout. An individual will also be subject to taxation on any "excess contributions" to an RRSP whether or not his salary is taxable in Canada. Taxation of excess contributions is discussed at page 19 of the Guide.
• 3. It is not necessary for a non-resident to file a tax return for the purpose of establishing an RRSP. A return may, however, be required if an individual has taxable income, as defined for Canadian tax purposes or he is requested to file a return. In circumstances where a T4 is unavailable it would be the responsibility of the individual to supply, on request, substantiation of his income for Canadian tax purposes.
• It should be noted that bilateral tax treaties with Canada do not prohibit individuals from filing tax returns where, under Canadian law as modified by application of the treaties, a return would be required, such as when excess contributions are made to an RRSP. For example, under the provisions of article 27 of the Canada-Netherlands Income Tax Convention (1986) (the "Convention") an employee of the Netherland's government is normally treated as a "non-resident" of Canada for Canadian tax purposes but he is still required to file a tax return if requested or if he has taxable income. Article 19 of the Convention then provides that in computing his taxable income, his salary paid by the Netherland's government will normally be exempted from taxation by Canada.
• 4. We are unaware of any means by which an individual in these circumstances could gain coverage under the Canadian Pension Plan.

We hope these comments are of assistance to you.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate

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