2 September 1983 Income Tax Severed Letter B-4645

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.

This is in reply to your memorandum of August 17, 1983 concerning two requests by taxpayers (a husband and his wife) for a refund of taxes withheld, by virtus of paragraph 212(1)(l) of the Income Tax Act (the “Act”), from lump sum payment out of registered retirement savings plan (“RRSP”).

You indicate that RRSP income is considered to be pension income udner the Convention according to Information Circular 76-12R2. However, the taxapyers' solicitor has taken this view that the RRSP contract is a trsut agreement and the incoem from this RRSP is therefore incoem form a trust, subject to the lower rate of 15% by virtue of Article XX of the Convention.

Our Comments

• 1. In Appendix A to Information Circular 76-12R2 the last column entitled “Lump Sum our of Pensions, Annuities or Similar Payments”, indicates that such payments received by a rsident of the Untied Kingdom are subject to a 25% withholding tax. We do not find any specific statment in the Ciruclar to the effect that RRSP income is considered pension income under the Treaty, and we have asusmed you consider the lump sum payments outs of the RRSP's in question to be “Similar Payments”.
• 2. In Article II of the Protocol to the Convention, it is stated that the term “pensions” does not include lump sum payments out of a pension plan”. This being the case, the definition of “pensions” contained in the West Hill(1) case, seems appropriate in this case:

“An annuity or other periodical payment made, esp. by a government, a company, or an employer of labour, inconsideration of past services...” ----------------------------------------------------------------------- (1) West Hill Redevelopment Co. Ltd. v. M.N.R., [[1969] C.T.C. 581] 69 DTC 5385, Exchequer Court of Canada, at page 5393. -----------------------------------------------------------------------

For the purposes of pargraph 1 of Article 17 of the Convention, as amended in the Protocol, we are of the opinion that the term “pension” would not include a lump sum payment out of an RRSP.

• 3. In our view, the payments in question are not entitled to the protection of Article 20 of the Convention since paragaph 2 of Article 3 of this Convention provides that:
• “Any term not otherwise defined shall, unelss the context otherwise requries, have the meaning which it has under the laws of that Contracting State relation to the taxes which are the subject of the Convention”.

Paragraph 212(1)(l) of the Act taxes a payment out of or under a RRSP (whether it is on capital or income account) whereas paragraph 212(1)(e) taxes income from a trust. As a rule of interpretation, the specific overrides the general, and therefore, a payment from a trust governed by an RRSP would not be considered income from a trsut, but rather would be considered a benefit out of or under an RRSP. It is significant in this regard that paragraph 212(1)(l) of the Act refers to a payment that would be requried by section 146, and not subdivision k of the Act, to be included in computing his income for the year if the non-resident person had been a resident in Canada throughout the taxation year in which the payment was made.

For the above-mentioned reasons, it is our view that a lump sum payment out of an RRSP which is subject to paragraph 212(1)(l) of the Act is not entitled to any relief under the Convention.