21 June 1984 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.

June 21, 1984

Accounting and Collections Division

Non-Corporate Rulings Division J.A. MacFarlane 995-2455

Mrs. G.C. Perrin Non-Resident Project Team

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Article XVII Canada-United Kingdom Income Tax Convention (the Convention) Paragraph 212(1)(h) of the Income Tax Act (the Act)

This is in reply to your recent memorandum questioning the amount on which withholding tax is exigible where a U.K. resident receives Canadian source pension income (e.g. $25,000) which he causes to be transferred in part (e.g. $5,000) (pursuant to an authorization in prescribed form from the payer) to an RRSP, under which the U.K. resident is the annuitant. In your view, withholding tax is exigible on the net amount $10,000 (in your example) computed by deducting the RRSP contribution pursuant to subparagraph 212(1)(h)(iii.1) of the Act and the exempt $10,000 (Article XVII of the Convention) from the gross amount of the pension income.

Argument can be made that since paragraph 212(1)(h) of the Act does not deny that payments under the Old Age Security Act and benefits under the Canada Pension Plan are payments of pensions, such payments must be included in some way in applying the $10,000 exemption in Article XVII of the Convention. As you know, we have never adopted this position with regard to the Old Age Security Pension or to the Canada Pension Plan benefits. It is our position that the $10,000 exemption in Article XVII applies in respect of taxable pensions and the taxable portions of annuity payments. We understand that this is the intent of the Article; i.e., only if an amount is subject to tax under Part XIII of the Act, do we look to the convention for exemption.

Since no tax is exigible under Part XIII of the Act in respect of a payment of superannuation or pension benefits that is properly transferred to an RRSP, we share your view that withholding tax is exigible only in respect of the net amount (e.g. $10,000 in your example.)

Incidentally, we note that in the Explanatory Notes issued by the Department of Finance in December 1982, the stated object of subparagraph 212(l)(h)(iii.1) of the Act was to give non-resident individuals rights essentially similar to those enjoyed by resident individuals under paragraph 60(j) of the Act. If tax is levied under Part XIII of the Act on amounts transferred to an RRSP that object will not be achieved. However, we note your concern that if Part XIII tax is not levied in respect of such transferred amounts, subsequent payments out of these plans may not be taxable, where the non-resident has arranged his affairs to take advantage of the diminimus rule in Article XVII of the Convention (which is also present in Article XVII of the Canada-New Zealand Income Tax Convention and Article XVIII of the Canada-Italy Income Tax Convention). We have accordingly forwarded a copy of this memorandum to our Provincial and International Relations Division. In this context, however, we note that a lump sum payment out of an RRSP would not qualify as a pension payment for the purposes of this treaty exemption.

for Director Non-Corporate Rulings Division