6 February 1990 Ruling 59273 F - RRSP - Indians

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.

February 6, 1990

Dear Sirs:

Re:  Registered Retirement Savings Plan ("RRSP") - Indians

This is in reply to your letter of December 8, 1989 and further to our telephone conversations of January 15th and 18th, 1990 concerning the tax treatment of RRSP withdrawals by Indians resident on a reserve.

You state correctly that if a (status) Indian were to deposit monies earned on a reserve into an RRSP he would not get a deduction from income for the amount contributed to his RRSP.  He would, however, be subject to tax under section 146 (paragraph 56(1)(h)) of the Income Tax Act when amounts are withdrawn from his RRSP.

You comment on this situation and then set out 5 scenarios with respect to which you would like clarification.

Our Comments

In the case of Nowegijick v. the Queen, 83 DTC 5041 (S.C.C.), Mr. Nowegijick was found not to be taxable on his salary earned off the reserve because it was paid from a corporation, the head office of which was resident on the reserve.  He also was resident on the reserve.

Interpretation Bulletin IT-62, on a policy basis, exempts from taxation, interest that is earned on funds deposited in a bank account at a Branch of the bank located on a reserve.  The Bulletin goes on to say that income from sources other than those enumerated, is generally considered to be located at the payor's principal place of business for purposes of determining whether or not it is on a reserve.  Principal place of business generally means the head office of the business.

Payments out of an RRSP, not being interest but income, are thus considered sourced at the Bank's Head Office.  Additionally, RRSP's are issued under a trust arrangement and in the case of the 24(1) .

Our reply, which follows the point order of your scenarios and questions, is based on the foregoing comments.

1.     An Indian who earns his income on a reserve opens an RRSP at the Bank's branch on the reserve.  As his income is earned on the reserve he is not subject to income tax and, therefore, gets no deduction for the amount contributed to his RRSP.

     He would, however, be subject to tax when the funds are withdrawn from the RRSP as the trustee for the RRSP is off the reserve.

2.     An Indian residing on a reserve and earning his income off the reserve opens an RRSP at the Bank's branch on a reserve.  Since his income is earned off the reserve and is taxable, he claims a deduction for income tax purposes with respect to his contribution to an RRSP.

     He would also be subject to tax when the funds are withdrawn from the RRSP as the trustee is off the reserve.

3.     An Indian residing on a reserve earns his income partly on the reserve and partly off the reserve.  He opens an RRSP at the Bank's branch on the reserve.  Since part of his income is taxable, he claims a deduction for income tax purposes with respect to this contribution to the RRSP.

     He would be subject to tax when any funds are withdrawn from the RRSP as the trustee is located off the reserve.

4.     The Bank does not have a branch on all Indian reserves and any RRSP deposits received by a branch from Indians on or off a reserve would be on behalf of a branch located on a reserve.

     Amounts withdrawn from such an RRSP would represent taxable income because, irrespective of where the branch is, the trustee for RRSP's is off the reserve.

5.     The Department's position would not be different if instead of a full service branch on a reserve, the Bank were to operate a sub-branch on the reserve which would be connected to a branch located outside the reserve.

As discussed over the telephone, in many cases it will not be advantageous for status Indians living on a reserve to acquire RRSPs.  Where their income is non-taxable they would get no deduction for the purchase of an RRSP but any payments out of the RRSP would be considered, as in all cases, as income subject to tax.  It appears to us that financial institutions that are encouraging status Indians to acquire RRSP's with tax exempt income are doing them a disservice.

We trust our comments will be of assistance in resolving this issue.

Yours truly,

E.M. Wheeler for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch