6 July 1995 External T.I. 9512605 - LSVCC AND TAX CREDIT AND RRSP

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:

1)Whether amounts held in a RRSP are contributions for the purposes of the def of "qualifying trust" under subsection 127.4(1)?

2)Can contributions to RRSP and resultant tax credits reduce tax withheld at source?

Position TAKEN:

1)Question of fact whether amounts held in RRSP represent contributions. Where traced to income earned by RRSP then does not qualify. If untraceable then policy is to accept if not greater than total contributions by individual to plan.

2)Subject to Minister approval.

Reasons FOR POSITION TAKEN:

1)see 5-943324
2)taxpayers can apply for waiver if credits or deductions will be available at time of filing

		951260
XXXXXXXXXX		M.P. Sarazin

Attention: XXXXXXXXXX

July 6, 1995

Dear Sirs:

Re: Registered Retirement Savings Plan ("RRSP")

This is in reply to your letter of May 2, 1995 wherein you requested our comments regarding amounts held in a spousal RRSP that may be used to acquire capital stock of a prescribed labour-sponsored venture capital corporation ("LSVCC"). In addition, where an individual uses amounts deducted at the source to contribute to an RRSP and such funds are used to acquire capital stock of an LSVCC, can the income subject to tax at the source be reduced by the contribution to the RRSP and can the income taxes deducted at the source be reduced by the tax credit computed under subsection 127.4(3) of the Income Tax Act (the "Act") resulting from the acquisition of the capital stock of an LSVCC.

Comments

Revenue Canada has adopted the view that an RRSP will be a "qualifying trust" under subsection 127.4(1) of the Act for an individual in respect of a share of an LSVCC if contributions to the RRSP made by the individual in a year or a preceding year (and no other funds) are used to acquire or subscribe for the share and the annuitant of the RRSP is the individual or a spouse of the individual.

It is a question of fact whether amounts held in an RRSP are contributions. In our view, an amount cannot be reasonably attributed to a contribution to an RRSP where the amount can be traced to income earned by the RRSP.

Where it is impossible to trace which part of the funds in the RRSP is reasonably attributable to contributions to the RRSP or income on these contributions, the Department is prepared to accept that an amount of money not exceeding the total contributions by the particular individual to the RRSP be considered contributions to the RRSP for the purposes of the definition of qualified trust under subsection 127.4(1) of the Act.

In any case, only the individual who makes the contributions used by the qualifying trust to acquire the capital stock of an LSVCC is entitled to deduct the tax credit under subsection 127.4(2) of the Act.

Where a taxpayer would like the amount of tax withheld at source reduced pursuant to subsection 153(1.1) of the Act because of credits or deductions which will be claimed only on filing the taxpayer's personal income tax return, the taxpayer (or representative) must apply in writing to the local tax services office outlining the facts on which the request is based and attaching supporting documentation (e.g. receipts, agreements). If satisfactory documentation exists to confirm entitlement, virtually any credit or deduction may form the basis for a request for a reduction of source deductions.

The criteria which the Department will take into account in considering an application for a reduction in source deductions are:

• that the taxpayer can provide reasonable evidence that present tax deductions from the taxpayer's income are in excess of those required at year end;
• that all required prior years' income tax returns have been filed;
• that no prior years' income tax arrears remain unpaid; and
• that a waiver request for current year source withholdings does not relate to an item under appeal from prior years.

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

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

c.c. Murray Lawton