24 August 1979 Income Tax Severed Letter

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.

XXXX

R.W. Yee Tel. (613) 99S-0051

August 24, 1979

XXXX

This is in reply to your letter of August 9 addressed to our Deputy Minister, Mr. Bruce MacDonald, pursuant to our telephone conversation of August 23, 1979.

We shall answer your questions regarding RRSP's and RRIF's as they are set out in your letter.

1) (a) Yes, If the annuity payable pursuant to the deceased spouse's RRSP is a joint and last survivor annuity as defined in clause 146(1)(i.1)(i)(B) of the Act, or if the RRIF payments are payable to the surviving spouse pursuant to an election described in the preamble in paragraph 146.3(1)(f) of the Act.

(b) No, subsection 146.3(2) does not permit the transfer of funds from a RRSP of the deceased spouse to a RRIF of the surviving spouse. On the other hand, because of his age the surviving spouse in your case is not permitted to acquire a new RR8P in order to "roll over" an amount of refund of premium from an unmatured RRSP of the deceased spouse under paragraph 60(1). Therefore where the RRSP of the deceased spouse has not matured and an amount of refund of premiums is received, the only "roll-over" available to the surviving spouse with the RRIF is to acquire an income-averaging annuity contract under section 61 of the Act to which the refund of premiums could be applied.

In a case where a RRSP of the deceased spouse has matured and on annuity for life becomes payable to the surviving spouse, the surviving spouse will be subject to tax on the annuity payments under subsection 146(8) as they are received.

(e) Where both spouses have RRIF's established with funds transferred from RRSP's, the residue in the deceased spouse's RRIF could be transferred and added to the surviving spouse's RRIF under subsection 146.3(2). We refer you to paragraph 3(c) of Information Circular 78-18 regarding RRIF's, a copy of which is enclosed for your purposes.

On the other hand, annuities for life pursuant to matured RRSP's cannot be consolidated with a RRSP or RRIP of the surviving spouse. However, a pension income deduction is available to the surviving spouse under section 110.2 in respect of annuity payments received pursuant to a RRSP of the deceased spouse.

2) (a) If the spouses become non-residents of Canada, this fact alone will not result in any immediate tax consequence where a RRSP has not matured.

In the case where an annuity for life is payable pursuant to a matured RRSP, the annuity payments will be subject to withholding tax in the hands of the non-resident annuitant under paragraph 212(1)(l) rather than subsection 146(8).

On the other hand, payments out of a RRIF to a non-resident annuitant will be subject to withholding tax under paragraph 212(1)(q) rather than subsection 146.3(5).

In both situations, an election for special treatment under section 217 is available.

(b) We are not aware of any specific law other than the Income Tax Act which would prevent the computation of RRSPs, annuities for life pursuant to matured RRSPs and RRIFs in your circumstances. However, in the case of unnatured RRSPs paragraph 146(2)(a) of the Act does not permit a commutation. In the case of annuities for life under matured RRSPs paragraph 146(2)(c) prohibits any commutation. Similarly, a RRIF cannot be commuted by virtue of subsection 146.3(2).

(c) In all cases, the withholding tax rate is 25% of the amount paid or credited to the non-resident annuitant. This rate is provided in subsection 212(1) of the Act and is subject to the provisions of any international tax agreement between Canada and the country in which the annuitant resides.

(d) According to Art. VIA of the Canada - U.S. Tax Convention, regular annuities for life in accordance with a matured RRSP or periodic payments made under a RRIF would be exempt from withholding tax in Canada.

On the other hand, the payment of commuted amounts to a non- resident would be subject to withholding tax under paragraph 212(l)(1) in respect of a RRSP or paragraph 212(1)(q) in the case of a RRIF.

It should be noted that the positions we have taken above are in accordance with the existing law and the Canada - U.S. Tax Agreement, as it now stands.

Should the relevant provisions in the Income Tax Act or the Canada - U.S. Tax Agreement be amended, the views we expressed above will probably change.

We might also mention that the Department is not permitted to provide consultative services to taxpayers in tax matters. Therefore, we would appreciate receiving questions from the public that are specific in nature and narrow in scope.

We trust the above is satisfactory to you.

Yours truly,

for Director Non-Corporate Rulings Division

Enclosure RWY/mn

s. 146(2) s. 146.3(2) Art. VIA Cda/U.S. Tax Treaty c.r. #1081-1-94 s. 212(1)(l) s. 212(1)(q)