24 March 1998 External T.I. E9626675 - rrsp rrif to non-resident- New Zealand

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: Tax treatment of lump-sum RRSP payments paid to residents of countries which have an income tax convention with Canada.

Position: - Where a convention refers to pensions but does not contain a definition for pension (i.e. for substantially all of Canada's conventions), lump-sum RRSP payments are pension payments but lump-sum RRSP payments are not periodic pension payments as defined section 5 of the ITCIA.

		-	Where a convention defines the term pension (currently only 5 conventions), it is necessary to look to the particular definition as to whether a lump-sum RRSP payment is a pension for purposes of that convention.

		-	Also, lump-sum RRSP payments are not considered to be "income from a trust" for the purposes of Canada's conventions.

Reasons: This is in line with the Department of Finance's views for such payments and is also supported by the Feb. 24, 1998 Notice of Ways and Means Motion to Amend the ITCIA.

                   						962667
XXXXXXXXXX 						G. Middleton
(613) 957-2122
Attention:  XXXXXXXXXX 

March 24, 1998

Dear Sirs:

This is in reply to your letter of July 30, 1996 and further to our telephone conversation of October 24, 1997 (between XXXXXXXXXX/G. Middleton) in which you inquired about the tax treatment for a lump-sum withdrawal payment from a registered retirement savings plan (“RRSP”) made to a resident of country with which Canada has an income tax convention (“convention”).

We would like to provide the following general comments which reflect our views on the tax treatment for such a lump-sum RRSP payment.

• An RRSP payment described in paragraph 212(1)(l) of the Income Tax Act (the “Act”) which is made to a non-resident is subject to Part XIII tax at the rate of 25%.
• We have presumed that the lump-sum RRSP payment described in your letter is not a “periodic pension payment” as defined in section 5 of the Income Tax Conventions Interpretation Act (the “ITCIA”).

Where a particular convention makes reference to the term “pension” but the convention does not include a definition of “pension”, any RRSP payment (lump-sum or periodic) is considered to be a “pension” for the purposes of that convention and not “income from a trust”. (This is the case in substantially all of Canada’s conventions.)

• If a particular convention contains a definition of “pension” (which is the case in only five conventions), a lump-sum RRSP payment may or may not fall under the definition of pension in that particular convention. For example, a lump-sum RRSP payment falls under the definition of pension in paragraph 3 of Article XVIII of the Canada-U.S. Income Tax Convention (the “U.S. Convention”) as a payment under a “retirement arrangement”. Whereas, a lump-sum RRSP payment does not fall under the definition of “pension” in Article XI of the Canada-Ireland Income Tax Agreement since it is not a periodic pension payment. Also, a lump-sum RRSP payment is not considered to be income from a trust under these conventions.

With respect to your comments concerning Article 17 of the Canada-New Zealand Income Tax Convention, the tax rates on pensions (including a lump-sum RRSP payment) and annuities made to a resident of New Zealand are summarized as follows:

• If the total amount of pensions (including periodic and lump-sum RRSP and RRIF payments plus CPP and OAS payments), plus annuities (other than a lump-sum payment) paid to a resident of New Zealand in a calendar year is $10,000 or less, the total amount is exempt from tax in Canada.
• However, if the total amount of such pensions and annuities exceeds $10,000, the entire amount is taxable as follows:

- The rate of tax on pension payments shall not exceed the lesser of 15%; or the rate of tax which would have been payable under Part I of the Act in respect of the amount of pensions if the recipient had been a resident of Canada for the year.

- The rate of tax on annuity payments (other than a lump-sum payment and IAAC payments) is 15%; and the rate of tax on a lump-sum payment and IAAC payments is 25%.

We trust the above comments will be of assistance to you.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
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