19 January 1995 External T.I. 9427605 - TRANSFERS BETWEEN RPPS, RRSPS, LIFS

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:

Transfers between RPP and RRSP, and between RRSP and LIF; withdrawals from RRSP, LIF.

Position TAKEN:

General discussion of rules.

Reasons FOR POSITION TAKEN:

Routine.

XXXXXXXXXX					942760

January 19, 1995

Dear XXXXXXXXXX:

This is in reply to your facsimile transmission dated October 24, 1994 in respect of transfers between certain deferred income plans made by a non-resident. We regret that other workload prevented an earlier reply.

1)You ask whether you may transfer from a defined benefit registered pension plan ("RPP") to a locked-in Registered Retirement Savings Plan ("RRSP").

The term "locked-in RRSP" has no meaning under the Income Tax Act (Canada) (the "Act"). A locked-in RRSP is an ordinary RRSP which is subject to a locking-in agreement attached to the RRSP contract which requires that the RRSP be held to provide a periodic pension income to the annuitant after reaching a certain age. This requirement is not imposed by the Act, but by the relevant provincial or federal pension standards legislation.

The ability to transfer amounts from your RPP depends on the terms of your RPP and your question should be addressed to your pension plan administrator or employer. If your plan permits you to transfer the value of your RPP to a locked-in RRSP, you can ask your plan administrator to directly transfer any part of the payment to your RRSP, if you are under 72 throughout the year in which the transfer is made, and the transfer will generally be tax-free. (If instead you are paid the RPP lump sum amount prior to the transfer, the amount will be included in your income for the year paid, and the opportunity to transfer it to an RRSP on a tax-free basis is not available.) However, if the lump-sum payment exceeds the maximum amount that can be transferred under the Act, the excess amount will be included in your income. This portion of the transfer would be characterized as a contribution to your RRSP, subject to the usual deduction limits for your RRSP. Your RPP plan administrator should be able to advise you if there would be any excess amount.

2)You ask when you can transfer the RRSP to a Life Income Fund.

The term Life Income Fund ("LIF") also has no meaning under the Act; instead, the terms of a LIF are provided for under provincial legislation. However, our understanding is that the provinces try to insure that a LIF qualifies as a Registered Retirement Income Fund ("RRIF") under the Act. A LIF has additional requirements imposed on it by the relevant provincial pensions benefits legislation, such as locking-in requirements. We also understand that a LIF has two stages. The first stage consists of funds being transferred from a locked-in RRSP to a RRIF where the funds are held until the annuitant reaches age 80. At that point the second stage occurs consisting of the funds being transferred to a life annuity.

Whether or not a LIF can be purchased with funds from a locked-in RRSP depends on provincial pension legislation. Again your RPP administrator or employer should be able to help you.

A non-resident annuitant of an RRSP may transfer the amount in an RRSP to his RRIF on a tax-free basis if the transfer is made directly between plans.

3) You ask when you can take money out of a LIF and how much may be withdrawn.

If the LIF qualifies as a RRIF, the Act requires that a minimum amount be paid out of the RRIF every year, starting in the year after the RRIF is established. This minimum amount will be calculated by the carrier of your RRIF, based on your age at the beginning of each year and the fair market value of the RRIF. The terms of your RRIF may also allow you to take more than the minimum amount out of the plan; however, we understand that provincial pension legislation imposes a restriction on the maximum amount that can be withdrawn from a LIF.

Distributions from an RRSP or a RRIF (including minimum amounts out of a RRIF) are fully taxable. If the recipient of the payment is a U.S. resident, tax will be withheld at source (that is, by the Canadian financial institution) at a rate of 15% or 25% depending on whether the amount is a periodic annuity payment or a lump sum payment.

4) You have asked if as a non-resident you can de-register an RRSP or a LIF and what the tax consequences are if the plan is de-registered.

The Act does not prohibit the withdrawal of funds from a RRSP or a RRIF; however, as noted above, provincial pension legislation will not permit your collapsing a locked-in RRSP or a LIF before a certain date. Note that a RRSP must be transferred to a RRIF or an annuity, or the funds taken into income, before you turn 72.

If you are permitted to collapse the plans, the Act does not allow for a tax-free rollover of funds under a RRSP or a RRIF to similar plans in a country other than Canada. Where a non-resident withdraws funds out of his RRSP or RRIF, the entire amount of the withdrawal is subject to withholding tax.

We emphasize that we make no comment on U.S. tax consequences.

The foregoing comments are an expression of opinion only and are not binding on the Department. We trust, however, that they are useful.

Yours truly,
for Director
Financial Industries Division
Rulings Directorate