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 ISSUE:
Whether withholding rates used on Life income fund payments should be based on the monthly payment or on the total payments made during a year.
Position TAKEN:
On the monthly payment.
Reasons FOR POSITION TAKEN:
A LIF is a RRIF for ITA and withholding on RRIF is established on each payment (5-922522)
5-943013
XXXXXXXXXX L. Roy
Attention: XXXXXXXXXX
January 20, 1995
Dear Sirs:
Re: Computation of Withholding Tax from Life Income Funds ("LIF")
This is in reply to your letter of July 26 1994 in which you requested clarification on the withholding tax requirements with respect to a LIF.
LIF, which are governed by provincial law, are generally registered as registered retirement income funds ("RRIF") pursuant to the Income Tax Act, but are subject to additional rules contained in the provincial legislation.
Therefore, withholding tax requirements with respect to RRIF payments are applicable on LIF payments. The yearly minimum amount that is required to be paid to a taxpayer under a RRIF is not subject to withholding tax. However, withholding is required with respect to payments in excess of the minimum amount out of a RRIF.
The withholding rates are as follows, depending on the amount of the payment:
Amount Tax Rate
Less than $5,000 10%
$5,000 - $15,000 20%
More than $15,000 30%
It is the Department's position that upon an election by a taxpayer to receive in excess of the minimum amount from a RRIF in a taxation year, subsequent payments during the year would be "blended" payments with the appropriate portions being considered "minimum amount" and "elected excess amount".
By way of illustration, if we assume a taxpayer has elected on January 1 to receive $46,800, before tax, during a taxation year, with the minimum amount determined to be $10,000, then each monthly payment of $3,900 would comprise a blended payment consisting of a minimum amount of $10,000/12 or $833.33 and an excess amount of $36,800/12 or $3,066.67. Each payment would therefore attract $306.67 ($3,066.67 x 10%) withholding tax for a total of $3,680 for the year.
If the taxpayer does not elect until later in the year to receive in excess of the minimum amount, consistent with the foregoing, it is the Department's position that withholding at source does not apply until such election has been made.
The foregoing opinions are not rulings and, in accordance with the guidelines set out in Information Circular 70-6R2 dated September 28, 1990, are not binding on the Department.
We trust the above comments will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1995
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1995