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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
Where property is contributed to an RRSP in error and the property is subsequently extracted out of the RRSP, in claiming the deduction under subsection 146(8.2) will the extraction have to be made at the fair market value of the property on the contribution date or on the extraction date?
Position: FMV on the extraction date.
Reasons:
The provision refers to the payment from the RRSP so the fair market value on the extraction date will be used in applying subsection 146(8.2) of the Act.
XXXXXXXXXX 2003-000815
April 16, 2003
Dear XXXXXXXXXX:
Re: Withdrawal of Overcontributions to a Registered Retirement Savings Plan ("RRSP")
We are writing in reply to your facsimile of March 13, 2003 wherein you requested information regarding the withdrawal of property contributed to an RRSP in error.
Specifically, where there has been a decrease in the fair market value of the property contributed to the RRSP, you ask whether the withdrawal of property from the RRSP is done at the fair market value of the property on the withdrawal date or at the fair market value of the property on the contribution date.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the Canada Customs and Revenue Agency ("CCRA"). All publications referred to herein can be accessed on the CCRA website at the following address: http://www.ccra-adrc.gc.ca/tax/technical/incometax/menu-e.html.
The CCRA's general views regarding contributions to RRSPs are found in IT-124R6 entitled Contributions to Registered Retirement Savings Plans.
Paragraph 24 of IT-124R6 discusses the situation where an annuitant contributes property to his or her RRSP. You will note that the annuitant is considered to have received proceeds of disposition in respect of the disposition of the property equal to the fair market value of the property on the contribution date and the premium received by the RRSP (i.e. the amount that can be claimed as a contribution to the RRSP) is also equal to the fair market value of the property on the contribution date.
Paragraphs 25 to 29 of IT-124R6 discuss the tax implications resulting from the withdrawal of undeducted RRSP contributions after 1990. Firstly, any withdrawal of undeducted RRSP contributions will result in an income inclusion under subsection 146(8) of the Income Tax Act (the "Act"). Paragraphs 26 and 27 of IT-124R6 provide general information regarding the offsetting deduction under subsection 146(8.2) of the Act that may be claimed in respect of the withdrawal of undeducted contributions from the RRSP. However, the deduction is subject to the anti-avoidance rule discussed in paragraph 28 of IT-124R6. The intent of the legislation is that, where all the conditions are satisfied and where the anti-avoidance rules do not apply, the annuitant will have an income inclusion under subsection 146(8) of the Act for the amount of the undeducted RRSP contributions withdrawn from the RRSP which will be offset by an equivalent deduction under subsection 146(8.2) of the Act. Where all of the conditions are satisfied, subsection 146(8.2) is a relieving provision designed to ensure that no taxes are paid on the undeducted RRSP contributions withdrawn from an RRSP.
Where property is extracted from the RRSP in respect of the withdrawal of undeducted RRSP contributions, the fair market value of the property at the time the property is withdrawn will be considered the amount withdrawn from the RRSP for the purposes of applying subsection 146(8.2) of the Act.
In the case where there has been a reduction in the value of the property originally contributed to the RRSP and this same property is extracted from the RRSP, the annuitant would have an income inclusion and offsetting deduction equal to the fair market value of the property on the extraction date but the annuitant would still have undeducted RRSP contributions that could be subjected to taxes under Part X.1 of the Act. You will note that Part X.1 taxes are discussed in paragraph 30 of IT-124R6.
We trust that these comments will be of assistance.
Yours truly,
Mickey Sarazin, C.A.
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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