2003 RRSP/RRIF Consultation Session October 27-28, 2003
Summary of discussion
Our 2003 consultation session in English was held on October 27 and the French session was held on October 28. This report summarizes the discussions of both the English and French sessions. Unless otherwise stated, the word we used in this report refers to the Canada Revenue Agency (CRA) and you refers to the financial industry.
The following are the topics that were discussed at the conference:
Presentation by Registered Plans Directorate
Presentation by Business Returns and Payment Processing Directorate
Presentation by Client Services Directorate
Presentation by Assessment and Collections Branch
6. Electronic RRSP Contribution Receipts
7. Spousal Plan Issues
8. Update on the HBP and LLP Programs
9. Late Group RRSP Remittances
10. 2003 RRSP Contribution Deadline
11. 2003 Federal Budget and the RRSP Deduction limit
12. Issues concerning Deceased Annuitants
13. Locating Annuitants
14. Withholdings on Multiple Withdrawals
15. Requirement to Pay
Presentation by International Tax Directorate
Update on the Reengineering of the Registered Plans Directorate
Questions and Answers
Additional Questions and Answers
Technical References and Examples regarding the Transfer of the Eligible Part of a Designated Benefit Paid out of a RRIF
1. T550 Filing Issues
RPD will not be accepting any microfiche for registration listings. Though we will continue to accept the paper format, we encourage all issuers and carriers to submit the registration listings to us on CD-ROM, which is a more efficient method and saves costs to both you and us
We respond to everyone that sends in a filing, but we still have a few 2002 filings that we have not acknowledged yet.
2. Removal of Spousal Flag Designation on Marriage Breakdown
Can information about the spouse or common-law partner be removed from a spousal RRSP or RRIF if the contributor and annuitant's marriage or common-law partnership breaks down?
Note: The response below has been updated following the Consultation Session so that Industry input would be included.
Yes. The annuitant can ask the issuer of the RRSP or carrier of the RRIF to remove the information about the contributor from the plan or fund. However, certain conditions must be met. These are outlined below.
Condition 1 - Proof of separation caused by breakdown. The annuitant and contributor must be living apart at the time of the request, and the issuer or carrier must be satisfied with the proof of the breakdown of their marriage or common-law partnership.
The issuer or carrier should ask for a written statement, signed and dated by the annuitant. In the case of an RRSP, the annuitant should state that he or she is no longer living with the person who is identified as the contributor because of the breakdown. In the case of a RRIF, the annuitant should state that he or she is no longer living with the person identified as the contributor to any RRSP from which transfers were made to the RRIF in question because of the breakdown of their relationship.
If documentary evidence of the breakdown exists (for example, a separation agreement or divorce decree), the issuer or carrier may also ask for a copy of the document.
The written statement and documentary evidence of the breakdown do not have to be filed with the Canada Customs and Revenue Agency. The issuer or carrier should keep a copy of these documents for their own records.
Condition 2 - No contributions. There must be no spousal or common-law partner contributions to any of the annuitant's RRSPs (i.e., RRSPs held with any issuer) for the year of the request and the two previous years.
The annuitant's written statement should certify that the spouse, common-law partner, former spouse, or former common-law partner did not contribute to any of the annuitant's RRSPs in the calendar year of the request nor in the two immediately preceding calendar years.
Condition 3 - No withdrawals. There must be no withdrawals from the spousal or common-law partner RRSP during the year of the request. In the case of a RRIF, no more than the minimum amount must be withdrawn.
The annuitant's written statement should certify that he or she did not make any withdrawals from the RRSP in the year of the request, or that he or she withdrew no more than the minimum amount from the RRIF.
When these three conditions are met, the issuer or carrier may remove the contributor information from the spousal or common-law partner RRSP or RRIF.
Alternatively, the property can be transferred to a new or existing individual RRSP or RRIF in the annuitant's name. In this case, the recipient issuer or carrier is not required to include any information about a contributor who is not the annuitant.
Where these three conditions are not met, information about the contributor cannot be removed from a spousal or common-law partner RRSP or RRIF unless the spouse or common-law partner who contributed to the plan or fund is dead.
3. RESP Issues
The electronic registration process for Education Savings Plans has been in effect since 2001. During this time, promoters have indicated to CRA that improvements could be made to this process, particularly in the area of registration reports. We have been and are in discussions with our counterparts at Human Resources Development Canada and we are in the process of working together to make system changes that will improve the reports we provide to promoters at registration. These changes will also allow CRA to keep and provide better statistics to promoters that request such information.
At the time electronic filing began, the "revolving" 13-month rule was born. This was meant to be a temporary process to ease the transition from the yearly paper listings to the more frequent electronic filings. With the change to RESP legislation applicable January 1, 2004, the 13-month rule is no longer needed. We are going back to the "60-day after the end of the year to register" deadline. There are still small details to iron out but promoters and trustees will be provided with more information in the near future.
Presentation by Business Returns Payment and Processing Directorate
4. RRSP Contribution Filing Requirements
The contribution year will consist of the last 10 months of the previous year and the first 60 days of the current year.
The filing date for RRSP Contribution Receipts will be May 1st following the contribution year, this allows us to be consistent with other existing legislation.
You should use your Filer Identification Number (FIN) which consists of HA followed by 7 digits. If you do not have a FIN, CRA will issue you one upon receipt of your return. Do not use your Business Number (BN).
The contribution record must be filed in the extensible Mark-up Language (XML) on CD-ROM. The XML record format is the international standard used by tax authorities for transfers of information return data. This record format will improve the quality of the data filed and make it easier for our clients and the Agency to make programming changes mandated by new legislation.
One of the features of XML filing is that you are able to test you own submission. You no longer have to wait for CRA to test it for you. The XML schema that you download from our Website and your validating parser must be used to test the format. The validating parsers can be downloaded from the Web. The programmer must use the schema files we provide together with the validating parser. The validating parser will verify that the XML document is properly created according to XML syntax rules. It will also verify that the document conforms to a specific schema. CRA does not recommend or support any of the parsers. Support questions should be referred to the software company that created the validating parser.
Below you will find the most asked questions on filing of RRSP contributions returns to CRA.
Question: If a correction or amendment is completed before filing the CD-ROM, should the CD-ROM only include the final contribution?
Answer: Yes, for CRA purposes we consider this an original.
Question: How often do I have to file my amendments?
Answer: We do not have a set timeline for submitting amended records. However, we ask that you submit them at regular intervals so that our records remain as up-to-date as possible.
Question: Can I file multiple year returns on the same CD-ROM?
Answer: Yes, provided that the return type is the same. For example, you cannot have a mixture of RRSP Contribution Receipts and T5s. You cannot combine various contribution years in one return. You must file each contribution year separately.
Question: What is a 'required' field?
Answer: A tag containing 'required' in the description indicates that the field is mandatory. If a required field is missing from your file, your validating parser will indicate that you have omitted this required information and XML tag. When an optional XML tag has a parent-child relationship, both levels are optional if you do not have information to report. If the parent tag is used, then the child tag must be used as well.
Question: Will there be a guide for electronically filed RRSP contributions Returns?
Answer: We are in the process of drafting a information sheet outlining what CRA requires in each field. In addition, we will have a Question and Answer sheet, which will respond to the most common enquiries. This should be available on our Website in January 2004.
Question: Has there been any consideration given to forming a User Group?
Answer: Some clients have expressed an interest in becoming a member of a User Group that can work with CRA technical staff. The group would deal with questions of common interest in order to develop common approaches and filing practices.
Presentation by Client Services Directorate
5. What's New in Publications
T4079, T4RSP and T4RIF
- T4RSP and T4RIF slips only available in laser format
- Distribution of electronic slips to recipients
T4040, RRSP and Other Registered Plans for Retirement
Changes for 2003 :
- Definitions of common-law partner and financially dependent
- Maximum RRSP deduction limit of $14,500
Changes to T4RSP and T4RIF
- Changes to T4RSP and T4RIF - Summary
- T4RSP and T4RIF slips, segments and summaries available in electronic format
- No changes to T4RSP and T4RIF segment and slips
Presentation by Assessment and Collections Branch
6. Electronic RRSP Contribution Receipts
Will the financial industry (RRSP Issuers) be permitted to issue electronic RRSP receipts to clients?
Technically, there is nothing stopping the industry from issuing electronic receipts at this time, as there is currently no legislation requiring issuers to provide clients with receipts. For this reason, the RRSP receipt requirements outlined in IC 72-22R9 paragraph 33 are not mandatory but are highly recommended. The industry provides the service to clients as a courtesy, since the client requires proof of contributions in order to claim deductions on their tax return.
Having said this, it has been CRA's policy not to accept electronic receipts as we do not recognize them as being an original receipt that would validate an RRSP deduction. Since RRSP contribution receipts now have to be reported to CRA, we will have a third party database to validate receipts. Therefore, we will permit the electronic delivery of contribution receipts to those issuers that are filing RRSP contribution receipts for 2003 and to all Issuers in 2004.
Regulation 209 will permit the issuance of electronic RRSP receipts provided that the client has given consent. An e-mail is an acceptable form of consent.
7. Spousal Plan Issues
Can you combine spousal and non-spousal RRSPs contributions in the same spousal plan?
There is no provision in the ITA that would prevent an individual from contributing to a spousal plan in which they are the annuitant and receiving the deduction on their return. The RRSP issuer must issue the receipt in that manner, as CRA will only allow an RRSP deduction based on the contributor that is named on the RRSP receipt.
We have discussed this item with some issuers in the last few months. A few brokers indicated that they set up these combined plans to accommodate clients, as it reduces fees. In these scenarios, the broker has to track each contribution that is made for attribution purposes and to issue tax receipts.
However, all financial institutions we spoke to indicate that they issue the receipt based on the type of plan established and they would not issue one receipt to the contributor and one to the annuitant for the same plan. Their systems were set up only to handle spousal receipts for a spousal plan and individual receipts for an individual plan, not a combination of both.
It seemed that only brokers allow for the combining of spousal and non-spousal contributions in the same spousal plan. (And the only means of issuing a receipt to the individual would be via an instant receipt.)
8. Update on the HBP and LLP Programs
- Home Buyers' Plan (HBP): There are 1,329,000 participants in the HBP program and almost 13.4 billion dollars have been withdrawn to date.
- In 2002, 43,000 T1036s were received by CRA and returned to the financial institutions for withdrawals made in 2002. As of January 2003, CRA is no longer returning T1036s submitted in error.
- In 2003, 8,000 T1036-HBP withdrawal forms have been submitted to CRA. CRA is no longer returning T1036s submitted in error. If the T1036 relates to withdrawals made prior to 2002 they still should be submitted. All HBP withdrawals made in 2002 or later should be reported to CRA on a T4RSP slip. The T1036 withdrawal form should still be completed but should be retained with the clients file in case it is requested.
- As you are aware, withdrawals made under the Home Buyers' Plan are to be recorded on a T4RSP and reported on a client's Schedule 7 at line 247. We would like to bring it your attention that there were approximately 3,000 clients that incorrectly indicated previous HBP withdrawals or current repayments at line 247, instead of their 2002 withdrawals. This may have resulted in the amount being included in income. We have identified those clients and have cleaned-up their files. We note that the majority of these files were net-filed returns and it seems that the tax filing software has created the honest mistake. We are working with the software industry to rectify the situation and we have also put some procedures in place internally to handle the situation.
Common query from RRSP Issuers
Question: How do we complete the T4RSP slip for HBP withdrawals that occurred in January of the current year when we are aware of previous withdrawal in the immediately preceding year?
Answer: The RRSP issuers are expected to report all RRSP withdrawals in the year they are made whether the withdrawal is a regular withdrawal or a withdrawal under the HBP. It will be up to CRA to review the withdrawal in the second year to determine if it was eligible or not. We will not automatically add these withdrawals into income. Once the review is made we will then set the ones withdrawn in January to eligible and the ones withdrawn in the remainder of the year to ineligible, and those will then be included in income. The client should be updating the schedule 7 with all withdrawals made in the year they were made. Our system is designed to handle this situation and works well even in scenarios where there is more than one RRSP Issuer and they are not aware of any previous withdrawal(s).
- Lifelong Learning Plan (LLP): There are 41,079 participants in the LLP program to date. The program has not reached the expected levels of participation.
- CRA's main concern with the LLP program is the issue of repayments. The repayment period as defined in section 146.02 of the Income Tax Act outlines many possible dates for the repayment to commence depending upon certain conditions. Namely, the eligibility of the education credit under subsection 118.6(2)
- Generally, the LLP legislation requires that a client begin to repay the second year they are not in full-time attendance or at the latest, the fifth year after the first LLP withdrawal. This means a client is not obligated to repay until the end of the second consecutive year he or she has not attended school. Therefore, a client will likely know when he or she is required to repay before that information is available to CRA. We will not know until they have filed their return whether or not they were an eligible full-time student during that period.
- Client withdrew under the LLP in 2000 and attended school. Client did not attend school in 2001. We will not usually know until after the 2002 return is filed in April 2003 whether or not the client was a full-time student for three months in 2002. If they did not attend school, they are obligated to repay in 2003. If they attended school full-time for three months in 2003, they are not obligated.
- Without a concrete repayment period like HBP, the LLP program has been difficult to administer. We have discussed our concerns with the Department of Finance and they are open to any changes that may assist us with our administration of the program. We plan to provide them with some suggestions. If you have any, please contact Kevin Stackhouse of CRA.
9. Late Group RRSP Remittances
Every year, the Canada Customs and Revenue Agency (CRA) receives administrative relief requests from employers asking us to allow group RRSP contributions that were remitted to the RRSP issuer after the contribution deadline to be considered as having been received during the first 60 days of the year.
In accordance with subsection 146(22) of the Income Tax Act, CRA is permitting financial institutions (RRSP issuers) to consider late remittances as having been received on time, if all of the following conditions are met:
- The contributions were for a group RRSP that the RRSP issuer administers;
- All the RRSP contributions were withheld before the RRSP contribution deadline;
- The late remittance missed the RRSP contribution deadline by a few days to a month;
- The late remittance was due to an administrative or system error by the employer or RRSP issuer that was beyond the individual members' control.
We note that the most common administrative or system errors are situations where the employee had made the payment by the deadline through regular payroll deductions but the funds were not remitted by the employer or were not received in time by the issuer.
When such a situation is brought to your attention and the conditions indicated above are met, accept the remittance as having been made on time. You do not need to contact CRA for our pre-approval. Issue a receipt to each of the employees that are impacted that indicates the contributions were received in the first 60 days of the current year. Please ensure that these amounts are not included on any receipt that is issued in respect of contributions made in the final 10 months of the current year.
You may only consider late remitted contributions as having been made on time in the circumstances mentioned above. Any other situations must be submitted to CRA in writing, and will be reviewed on a case-by-case basis.
10. 2003 RRSP Contribution Deadline
The 60th day, February 29, falls on a Sunday. Therefore, the deadline for making deductible contributions to a Registered Retirement Savings Plan (RRSP) for the 2003 tax year is Monday, March 1, 2004.
The Interpretations Act considers that a due date will be moved to the next business day if it falls on a Sunday, statutory holiday or a non-work day. Please note that the Act considers Saturday to be a non-work day in most provinces. For administrative purposes, the Agency has adopted the position that Saturday will be considered a non-work day in all provinces and territories.
Our Directorate has recommended to the Client Services Directorate, who are responsible for Publications, to communicate CRA's position in applicable publications to enhance accuracy and clarity. We note that the T4RSP and T4RIF Guide in your package does address this issue on Page 4 under the heading "Due Dates".
11. 2003 Federal Budget and RRSP Deduction Limit
The 2003 Federal Budget dated February 18, 2003 increased the RRSP dollar contribution limits, effective for the 2003 tax year. The legislative change impacted the 2003 RRSP deduction limit that was communicated on the 2002 Notice of Assessment and Reassessment.
The legislative change increases the maximum RRSP deduction limit that a client can earn in 2003 from $13,500 to $14,500. Basically, clients may receive $1,000 more of RRSP room in 2003, if their 2002 earned income is greater than $80,556. Previously, a client received the maximum room in a year of $13,500 based on earned income that was greater than $75,000. We note that a client's Pension Adjustment (PA) may limit the additional RRSP room created by the legislative change.
The system changes to increase the RRSP limit were implemented on Notices dated April 17, 2003 and thereafter. We identified all clients that were assessed prior to April 17 and issued a revised RRSP deduction limit statement in early October. There were 270,000 clients in total.
We note that Bill C-28, the Budget Implementation Act, 2003, received Royal Assent on June 19, 2003.
12. Issues concerning Deceased Annuitants
Technical interpretation 2001-010826 issued February 25, 2003
Some of you expressed concerns about this interpretation, which discusses the taxation of income earned in an RRSP after the death of the last annuitant. We would like to mention that the Income Tax Rulings Directorate is reviewing your concerns. Unfortunately, that review is ongoing. A response will be communicated to you at a later date.
Deceased reporting examples
Many of you asked that CRA create additional examples, similar to those linked to the summary of discussions for the 2000 and 2001 consultation sessions.
In light of the requests we have received, we will be creating additional examples to address various issues and situations you pointed out (e.g., the situation of non-residents and the decrease in the value of the property held in the plan or fund after the death of the annuitant). Because of the ongoing review of certain technical issues, a new package will be created as soon as possible.
Transfer of the eligible part of a designated benefit paid out of or under a RRIF
Some of you asked us to clarify when and how you are required to calculate the eligible part of a designated benefit paid out of or under a RRIF following the death of the last annuitant. The information that follows provides a detailed explanation of the legislative provisions that apply, as well as our interpretative comments.
See Appendix D for the technical references and examples.
When are you required to calculate the eligible part of a designated benefit paid out of or under a RRIF?
You do not have to calculate the eligible part of a designated benefit when:
- The annuitant, in the RRIF contract or their will, named their spouse or common-law partner as the successor annuitant of the RRIF; and
- You agree to continue to make payments under a RRIF to the annuitant's spouse or common-law partner and the deceased annuitant's legal representative consents to this.
In these situations, the same payments would continue uninterrupted to the surviving spouse or common-law partner. The spouse or common-law partner becomes the new annuitant for all purposes of the RRIF.
You also do not have to calculate the eligible part of a designated benefit when:
- In the RRIF contract, the annuitant named their spouse or common-law partner as the beneficiary of the RRIF and the spouse or common-law partner does not transfer any part of the designated benefit or only transfers a portion thereof under paragraph 60(l) of the Income Tax Act to their RRSP or RRIF, or to an issuer to purchase an eligible annuity;
- In the RRIF contract, the annuitant named their spouse or common-law partner as the beneficiary of the RRIF and you process a transaction, after the end of the RRIF's exempt period, to transfer the maximum amount of the designated benefit under paragraph 60(l) of the Act to the spouse's or common-law partner's RRSP or RRIF, or to an issuer to purchase an eligible annuity; or
- In the RRIF contract or their will, the annuitant named their financially dependant child or grandchild as the beneficiary of the fund.
In these situations, the calculation of the eligible part of the designated benefit either does not apply or must be completed by the qualified beneficiary.
The only situation where you are required to calculate the eligible pat of the designated benefit is when:
- In the RRIF contract, the spouse or common-law partner is named as beneficiary of all the RRIF property;
- You are making a direct transfer of the entire eligible amount of the designated benefit under paragraph 60(l) of the Act to the spouse or common-law partner's RRSP or RRIF, or to an issuer to buy an eligible annuity for the spouse or common-law partner; and
- All the RRIF property is distributed before the end of the exempt period.
How do you calculate the eligible part of a designated benefit paid out of or under a RRIF?
The eligible part of a designated benefit is determined in accordance with subsection 146.3(6.11) of the Act. You will find the calculation in Appendix C on page 25 of the T4RSP and T4RIF Guide.
The calculation ensures that the maximum amount that the qualified beneficiary can transfer under paragraph 60(l) of the Act, in respect of the amount received in the year, does not include the part of the minimum amount payable under the RRIF for the year that was not included in the last annuitant's income for that year.
In effect, the eligible amount calculation ensures that a tax deferral is not available on the part of the designated benefit that would have been required to be paid as a minimum amount in the year in which the designated benefit is paid if the annuitant had not died.
- The eligible amount calculation can only be completed in respect of an amount that has been paid to a qualified beneficiary.
- References to "minimum amount payable under the RRIF for the year" means the minimum amount that would have been paid under the RRIF in the year the designated benefit is paid had the annuitant not died.
What results can you expect?
In general, the eligible amount calculation will produce the following results:
- If the designated benefit is paid in the year the last annuitant died, the eligible amount equals the entire designated benefit if the annuitant was paid the minimum amount before death.
- If the annuitant received none of the minimum amount before death, the eligible amount will equal the designated benefit minus the minimum amount for the year.
- If some of the minimum amount had been paid to the annuitant before death, the eligible amount will equal the designated benefit minus the minimum amount that remained to be paid in the year.
- If the designated benefit is paid in a year following the year of death, the eligible amount equals the designated benefit minus the minimum amount for the year.
What happens to the non-eligible part of the designated benefit?
Because the eligible amount calculation is based in part on the designated benefit that the qualified beneficiary received, the non-eligible part of the designated benefit (i.e., the difference between the amounts reported in boxes 16 and 24) is required to be included in the income of the qualified beneficiary for the year the designated benefit is received.
Because of the interaction between subsections 146.3(6) and (6.2) of the Act, can the non-eligible part of a designated benefit be taxed to the deceased annuitant instead of the qualified beneficiary? This option would be beneficial if the annuitant did not have much income in the year of death. If so, this would require a different reporting procedure than that indicated for Situation 1 on page 18 of the T4RSP and T4RIF Guide.
We agree that subsection 146.3(6.2) would enable the annuitant's legal representative to bring into the annuitant's income for the year of death the amount that the qualified beneficiary could not transfer under paragraph 60(l) of the Act.
However, despite this shifting of income to the deceased annuitant, the eligible amount calculation in subsection 146.3(6.11) would still limit the amount of the designated benefit that the qualified beneficiary can transfer under paragraph 60(l).
This is so because the amount included in the annuitant's income by virtue of subsections 146.3(6) and (6.2) is not recognized in the eligible amount calculation in subsection 146.3(6.11). Consequently, the qualified beneficiary would still be required to pay tax on the part of the minimum amount that the annuitant would have received in the year the designated benefit was paid, had the annuitant not died.
13. Locating Annuitants
Over the past year we have received several requests from RRSP issuers for assistance in locating annuitants that had fallen out of contact.
The majority of these requests involve annuitants whose RRSP could not be matured within the prescribed time limit, i.e. in the year in which they reached age 69.
We would like to mention that CRA does have a letter-forwarding service called the Letter Forwarding Unit.
What is the service?
As the name suggests, CRA will attempt to locate and forward your letter to the individual you are attempting to join.
Before we will consider providing letter-forwarding services to you, you must have exhausted all efforts to locate the individuals you are trying to contact through private-sector organizations. We do not want to compete with private-sector organizations that search for current addresses to forward information. As a result, you should consider our services only as a last resort.
We will forward letters to an individual only when we have received a written request from you that demonstrates there is a need:
- Of an urgent and compelling nature; or
- Made on humanitarian and compassionate grounds; or
- Of some benefit to the recipient; and
- Free of any unwelcome intrusion of privacy.
We define the term urgent in this context as being eligible to receive a benefit in the current year or the year immediately following.
Do we charge for the service?
Yes we do. Our policy is to recover costs when we provide services on behalf of an individual or organization.
How do you get more information about the service?
Send us an e-mail. We will send you an information sheet that contains more detailed information and instructions on how to make a request.
14. Withholdings on Multiple Withdrawals
The issue concerns the lump-sum withholding rate that should be applied in a situation where an annuitant requests that a particular amount be withdrawn from a plan or fund by means of a series of payments (instalments).
Should the withholding tax rate be applied based on the amount of each individual installment or the total of all payments (the total amount of the withdrawal requested)?
It is the CRA's longstanding position that, when qualifying lump-sum payments are split into multiple payments (installments), and that each payment is made in fulfillment of a single compensation that is known in advance, the withholding rate applicable to the total payment is used.
If each payment is a separate payment, the lower rate of withholding applies to each.
For example, if at the beginning of the year you receive a request to pay a client $1,500 per month out of the client's RRSP for an annual amount of $18,000, you would apply the withholding rate of 30% to each installment payment. Because the total amount of the withdrawal for the year was known in advance, the withholding rate applicable to the total amount withdrawn is to be applied.
If, later in the year, the client requests an additional withdrawal that is over and above the installment payments, you should use the rate that applies to that payment only.
15. Requirement to Pay
We have received a few questions concerning the administration of requirements to pay and we had asked our colleagues in the Revenue Collections Directorate to answer your questions. Unfortunately, they couldn't attend the consultation sessions but they provided the answers.
Question: If we receive a requirement to pay and we also receive a request from a client to transfer the RRSP to another financial institution, should we pay the CRA before transferring the funds? (The administrative procedure prescribed by the Income Tax Act authorizes us to require a payment from a third party in certain situations).
Answer: Upon receiving a requirement to pay, you must immediately pay all sums owed to the tax creditor.
However, investment vehicles are, in most cases, deposit accounts with an expiry date or investments in mutual funds or investment vehicles.
The requirement to pay will apply in all cases where the client has chosen a liquid investment vehicle such as a deposit account (which rarely happens). One of your colleagues tells us that there is a recent case law on this subject: National Trust v. The Queen. We note that since the consultation sessions, this case has been overturned.
In cases where the investments are frozen, you are allowed to transfer them to another financial institution without paying the CRA.
Question: Should we advise the CRA that we have transferred the plan?
Answer: You are under no obligation to do so, but it would be prudent and save you work later on (follow-up by the Collections Officer, information request, etc.). We suggest that you return the request to the Collections Officer with your comments written on the back of the document.
Question:If we don't receive a new requirement to pay after the due date (one year) of the original request, should we assume that the CRA is no longer interested in the client's RRSP?
Answer:Yes, it is the Collections Officer's responsibility to ensure that the request is renewed if it is about to expire.
Presentation by International Tax Directorate
16. Non-Resident Withholding Tax
Who we are
The Part XIII Withholding Section of the International Tax Directorate provides functional support and policy guidance to ensure compliance with the withholding, remittance and reporting requirements outlined under Part XIII of the Income Tax Act.
Our programs are delivered nationally through the International Tax Services Office. The Office performs the following:
- Ensuring account enforcement and compliance;
- Processing various elections and refunds dealing with Part XIII tax;
- Answering enquiries by telephone, by correspondence or in person.
International Tax Services Office
Non-Resident Withholding Division
2204 Walkley Road
Ottawa, Ontario K1A 1A8
Toll-free telephone number : 1-855-284-5946
Outside Canada: 613-940-8499
Fax number: (613) 941-2505
Under section 212 of the Income Tax Act, a non-resident person who receives certain types of payments must pay an income tax of 25 %. The taxation of RRSP and RRIF payments is provided for in paragraphs 212(1)(l) and 212(1)(q) respectively. Under paragraph 214(3)(c), we find payments that are deemed to have been paid to the non-resident as a payment under a registered retirement savings plan or an amended plan. Paragraph 214(3)(i) describes payments that are deemed to have been paid to the non-resident as payments under a registered retirement income fund.
When a person pays, credits or provides, or is deemed to have paid, credited or provided an amount described above, that person has to deduct the required tax and "forthwith remit that amount to the Receiver General" on behalf of the non-resident person (subsection 215(1)). However, this is not quite practical and this is why we follow Regulation 108(1) where amounts deducted or withheld in a month will be considered as received on time if they are received on or before the 15 th day of the following month. The definition of "received" is found in subsection 248(7) of the Income Tax Act. The remittance or payment of an amount deducted or withheld will be considered to have been made on the day on which the Receiver General receives it.
Section 202 of the Income Tax Regulations requires that whenever a person residing in Canada pays or credits or is deemed by Part XIII of the Act to pay or credit a non-resident person an amount as RRSP or RRIF, that person has to file an NR4 return on or before March 31 in respect of the preceding calendar year. If the number of NR4 slips the payer has to file is more than 500, section 205.1 of the Regulations makes it mandatory to prepare the return in an electronic format.
i. What if you:
- Withheld tax in error and didn't prepare the NR4 yet? You can under-remit by the amount of tax in error and complete the NR4 slip with the correct amount of tax.
- Withheld tax in error and prepared an NR4? In such a case, the non-resident will have to request a refund from CRA on form NR7-R.
- Issued an NR4 to a Canadian resident? Do not cancel the NR4 and issue a Canadian slip. Instruct the Canadian resident to include the NR4 slip with their tax return. If tax was withheld, they will get a credit on their return.
- Forgot to report some of the tax on the NR4? Follow the instruction in the T4061 Guide on how to amend or replace an NR4 slip.
ii. Special instructions on how to fill the NR4 slip:
- It is important to fill all of the applicable boxes: year, recipient type, country code, non-resident account number, social insurance number (or foreign social security number), income code, currency code, gross income, non-resident tax withheld and exemption code.
- It is important to choose the correct country code from Appendix A in the NR4 guide. Please note that CAN and OMC are not valid country codes.
- Lump-sum and periodic payments should be reported on a different line on the NR4 slip, using the correct income codes, which can be found in Appendix B of the guide.
- If you use a currency code other than CAD, the amounts reported in gross income and non-resident tax withheld will be converted with the annual Bank of Canada rate for the specific currency. For example, if you reported an income of $100 with the currency code USD for 2002, we will consider that you paid the non-resident $157.04 Canadian Dollars.
Definition of "paid" or "credited"
The definitions and interpretation of the words "paid" and "credited" found in Information Circular IC 77-16R4 paragraph 5 and Income Tax Technical News number 14 were reviewed.
ERRATUM: During the session, it was said that when a payer becomes aware that an annuitant passed away, the income is considered paid/credited when the payer actually pays the income. This is not consistent with a decision from the Income Tax Rulings Directorate (#9932577) in which we say that "for the purposes of Part XIII of the Act, paragraph 214(3)(c) of the Act specifically provides that where, because of subsection 146(8.8) of the Act, an amount would, if Part I applied, be required to be included in computing a taxpayer's income, that amount shall be deemed to have been paid to the taxpayer as a payment under a registered retirement savings plan or an amended plan. By virtue of subsection 214(3.1) of the Act, the deemed payment is deemed to have been paid immediately before the death of the annuitant." We do understand that payers sometimes have difficulties meeting their requirements under section 215 when they are advised late of the death of the annuitant. We are reviewing how we can alleviate or attenuate this problem they have with the current legislation.
Part XIII or treaty rate? Subsection 10(6) of the Income Tax Act Application Rules provides that if the rate allowed under an agreement or convention between Canada and the government of another country allows a lower rate of tax than Part XIII of the Act, the lower rate in the agreement or convention will apply.
a)The different rates of tax for each type of payment and for each country with which Canada has a tax convention can be found in Information Circular IC 76-12R. Although considered to be correct at the date of issuance, this publication is quickly outdated by the changes made in tax conventions. For this reason, it is important that payers keep current with the status of tax conventions.
b)Periodic or lump-sum? Many tax conventions will allow a different rate of tax depending if the payment is periodic or lump-sum. However, few conventions will provide an explanation of what is a periodic pension payment and what is a lump-sum payment. In such circumstances, payers must follow the definition of "periodic pension payment" found in paragraph 5 of the Income Tax Conventions Interpretation Act.
c)Tax convention: The Department of Finance provides information on the text as well as the status of each tax convention. Users can also subscribe at that address to "mail alert", which will advise them of any new change with tax conventions.
Choices related to pensions and Form NR5
a)What are the non-resident's choices on pension income?
Non-residents have three options on how they want to be taxed on pension income: they can choose to pay 25 % tax (or reduced rate as per tax convention), they can choose to pay 25 % tax (or reduced rate as per tax convention) and file an income tax return under section 217 to pay tax at the same rate as Canadian residents, or they can opt to request for a reduction in the amount of tax to be withheld before they receive the payments and file an income tax return under section 217 to pay tax at the same rate as Canadian residents.
Non-residents will use Form NR5 to request for a reduction in the amount of tax to be withheld on certain types of payments, including RRSP and RRIF. The amounts they report on the NR5 are estimates of the payments they will receive. Based on this information, we calculate what their tax liability will be under section 217 and allow them a reduction if applicable. The payer will be advised of the reduction to apply on the payments.
c)What should you do when you receive a letter from CRA?
The letters CRA sends the payers contain this important information: the reduction rate to apply on the payments and the maximum amount covered by the reduction. The letter provides the payer the authorization to withhold at a reduced rate up to a certain maximum amount. The payer should ensure that when that amount is exceeded, the full rate of tax is applied on the rest of the payment.
Reengineering of the Registered Plans Directorate Project Plan
- Communications and consultations
- Plan Documentation and Review
- Risk-based Framework
- Certified Plan Provider Process
Communications and Consultations
- June 2003 - December 2003
- Improve information sharing
- Establish consultation strategy
- Web-based survey for clients
- Examine best practices
Plan Documentation and Review
- January 2004 - December 2004
- Examination/validation or processes to make them more efficient
- Focus on client service and compliance
- Utilize web-based consultation/surveys, advisory committees/focus groups
- Best practices review
- October 2003 - March 2004
- Integrate risk management
- Risk management framework to be in place before new processes defined
Certified Plan Provider Process
- Pilot to be in place by March 2005
- Selected defined benefit pension plan providers to participate
- Based on results, may be expanded to include other deferred income plans
- Scope of accepted change
- IT solution
- Resources (Human and Financial)
- Communication/Change Management
- CRA priorities
Information and Feedback
Questions and Answers
1. Existing holders of "900 series" Social Insurance Numbers (SINs) must request a replacement SIN card before March 2004; the replacement cards will carry the same number but will include an expiry date. Upon expiry of the replacement cards, individuals will be required to obtain a permanent card, which will carry a number from a different series. Financial institutions require client SINs for tax reporting purposes. Based on the information we have received, it appears that we will be required to search client records each year in order to identify cases with 900 series SINs, and to request updated SIN information from such clients. This process will increase operational cost and create a significant responsibility on financial institutions. Shouldn't the cardholders be responsible to obtain a permanent card when due and provide us with the up-to-date information?
Paragraph 162(5)(a) of the Income Tax Act (the Act) requires filers to attempt to obtain from the individual all information pertinent to the information return. In addition, paragraph 162(6) of the Act requires individuals to provide their SIN to any person required to file an information return on their behalf.
In the case of RRSPs, the contract cannot be registered without the SIN. So if an individual does not provide his/her SIN, they have not entered into a valid contract and therefore are not entitled to the deduction.
In essence, both parties have responsibilities for ensuring that records remain current. Cardholders are responsible to obtain their permanent card and provide the information to filers. It would not be up to the filer to remind individuals that their number has been deactivated.
2. There was a proposal in the 2003 Federal Budget for RRIF type payouts from money purchase RPPs. The proposed changes will apply after 2003. I would like to know if there is any development on this proposal?
The Department of Finance is currently working on regulations to implement the budget measure and expects draft regulations will be released later this year.
3. The U.S. Internal Revenue Service (IRS) has issued Notice 2003-25 on April 11, 2003 to remind U.S. citizens and U.S. residents with interests in Canadian trusts to report certain information in their U.S. tax returns. A Canadian trust (including RRSP and RRIF) controlled by such person (i.e. RRSP or RRIF annuitant) is required to file a separate form (3520-A). This filing requirement has an impact on all the RRSP and RRIF issuers since it is possible to monitor or identify the filing status of each annuitant in their plans. Has the IRS contacted CRA to obtain a list of all the RRSP and RRIF specimen plans so they can assess the filing requirement? Is CRA planning to enter any reciprocal arrangement in order to eliminate the filing requirement imposed on Canadian RRSP and RRIF issuers?
CRA confirms that it has not been in contact with the Internal Revenue Service regarding this issue. Moreover, CRA is not aware of any discussions with the Department of Finance about the exchange of information regarding RRSP or RRIF trusts.
4. If an annuitant is a non-resident and he/she wants to make a contribution to his/her RRSP, is the issuer responsible for ensuring that the non-resident annuitant is qualified to make a contribution?
The issuer is not responsible for determining if the non-resident annuitant is qualified to contribute to an RRSP. However, it is the issuer's duty to remind the contributor to check his/her RRSP deduction limits or else he/she may be subject to over-contribution tax.
5. On June 23, 2003 the Department of Finance issued a News Release that stated that the Minister of Finance would recommend that Part XXXII of the Income Tax Regulations be amended to include the Luxembourg and Warsaw stock exchanges in the list of prescribed stock exchanges outside Canada. In light of this announcement, can CRA confirm that it will administer the proposed change as if it were law pending its publications in the Canada Gazette?
CRA confirms that it will administer the proposed change announced in the Department of Finance News Release dated June 23, 2003. However, we would like to emphasize that we are dealing with proposed legislation, which may or may not become law. Consequently, if the proposed change does not become law, CRA will consider any share purchased on the above-noted stock exchanges to be a non-qualified investment subject (from the moment of acquisition) to the various tax provisions that apply to non-qualified investments (see paragraphs 28, 29, 30, and 31 of Interpretation Bulletin IT-320R3, Qualified Investments - Trust Governed by Registered Retirements Savings Plans, Registered Education Savings Plans and Registered Retirement Income Funds).
6. On December 20, 2002, the Department of Finance released a package of draft technical amendments to the Income Tax Act (the Act). Of interest are the proposed changes to subsection 147(19), which provides for the tax-free transfer of assets from a deferred profits sharing plan (DPSP) to a registered pension plan (RPP), a registered retirement savings plan (RRSP) or another DPSP. In particular, subparagraph 147(19)(b)(ii) is being amended to allow:
- direct transfers on the death of an employee or former employee to be made on behalf of a former spouse or common-law partner of the deceased employee; and
- direct transfers to be made on behalf of a spouse or common-law partner, or former spouse or common-law partner of an employee or former employee, where the transfer relates to a division of a property arising on the breakdown of their marriage or common-law partnership.
In addition, subparagraph 147(19)(d)(iv) is being added to allow for direct transfers from DPSPs to RRIFs.
In light of the release of the package of technical amendments by the Department of Finance, can CRA confirm whether or not it will administer the proposed changes as indicated above?
CRA confirms that it will administer the proposed change to subparagraphs 147(19)(b)(ii) and 147(19)(d)(iv) announced in the Department of Finance package of draft technical amendments to the Act dated December 20, 2003. Although Form T2151, Direct Transfer of a Single Amount Under Subsection 147(19) or Section 147.3, will not be modified to reflect these changes until they become law, the form can be used to document the additional transfers.
7. When a financial institution was not made aware of the death of the annuitant in a timely manner (i.e. informed during the current year that the annuitant died prior to December 31st of the previous year), with regards to a T3 Return, late filing penalties and interest charges are applied. Thus, we are required to prepare a T3 Return retroactively and are then penalized for late filing and unable to recover funds because they have since been paid out to the Estate/Benefits?
The year following the year of death, a T3 Return is required to be filed to report income of the deceased. If you do not file the T3 Trust Income Tax and Information Return by the required date, we may charge a late filing penalty and interest. On occasion, extraordinary circumstances beyond the control of clients can prevent them from complying with these requirements. Fairness provisions allow us to waive the late filing penalties and interest in certain circumstances. The issuer of the RRSP should then submit a letter detailing the reasons for which they were unable to meet the filing obligations. In the letter, please state that you are requesting to have the late filing penalty and interest waived through fairness. A request for fairness is determined on a case-by-case basis. Please refer to Information Circular IC07-1 - Taxpayer Relief Provisions.
8. When multiple funds are reported on a T3, investors get a supplementary slip (for their records) listing all the funds and their respective distribution type totals. However, the distributions for all the funds are summed up and the totals reported in the various distribution boxes on one portion of the T3 slip. Investors will attach a copy of this portion to their Income Tax Return. CRA, on the other hand, receives a magnetic tape (if filed by magnetic tape) that has details of all the funds and their respective distribution amounts per investors. When amendment or cancellation is being done manually (by paper) to the investor's T3, should the agent amend or cancel the slip (the portion that contains the sum of all the distributions) and indicate "AMENDED" or "CANCELLED" on it and forward a copy to CRA, or does the agent have to amend or cancel each fund individually and send copies of the multiple slips to CRA?
As you are aware, mutual fund trusts that file T3 slips on magnetic media may combine the income and capital gains from several funds onto one T3 slip for the unit holder. If you chose to consolidate unit holders slips and an amendment is later required, you must provide the unit holder with an amended slip and an amended statement. This will allow the unit holder to maintain proper records.
Your submission to CRA is filed by individual fund, and thus, amendments must be submitted by individual fund as well. We will return amended slips that reflect consolidated data, as we are not able to determine which funds are to be amended or cancelled.
9. a) At the 2002 session, a list was handed out with the information that issuers would have to provide for e-filing of RRSP contribution information (Appendix D of the minutes as posted on CRA's Website). It was stated that no information other than what was on the list would be required. The XML specifications contain a number of additional items that were not on the list and some of them are indicated as being required. Why are your requiring issuers to provide information that is not required to be on the paper receipts given to clients?
9. b) Please confirm that in referencing the XML layout, data must be provided for data fields marked as "required" but that for all other fields data does not have to be provided.
9. c) Will CRA be providing a guide for e-filing of RRSP contributions (like the ones that are available for various tax slips)? Will the guide provide guidance on what does and does not constitute an amendment and other administrative type questions? When will it be available?
9. d) Has the CRA considered setting up a user group so that technical staff of issuers can work with CRA's technical staff to deal with questions that are of common interest and so that common approaches and filing practices can be developed?
a) The information sheet distributed at the 2002 session was a first draft of the data requirements. As the business requirements were being written, it was discovered that some additional information would be required. We felt it would be in the best interest of our clients to obtain all of the necessary data upfront rather than amending filing requirements at a later date.
b) Tags that have "required" in the description area must form part of the submission. Missing "required" tags will result in an unreadable record that cannot be processed. Testing your submission with your validating parser will reveal any such problem.
c) We are in the process of drafting an information sheet outlining what CRA requires in each field. In addition, we will have a Question and Answer sheet that will respond to the most common enquiries. These should be available on our Website in January 2004.
d) Some clients have expressed an interest in becoming a member of a user group that can work with CRA technical staff. The group would deal with common questions in order to develop common approaches and filing practices. If you are interested in participating, please contact Louise Des Lauriers.
10. We have not been able to locate any guidance from CRA on what the issuer of the RRSP is required to do when the original RRSP receipt has been sent to the holder of the RRSP and needs to be corrected. Please confirm there is no requirement for the issuer to recover the original receipt. Should there be on the second receipt any indication that it is a duplicate, or an amendment?
Paragraph 39 of IC 72-22R9, entitled Registered Retirement Savings Plans, sets out guidelines for retrieving RRSP receipts if there was an error in the issuance of the receipt or if the receipt became invalid due to non-sufficient funds. CRA would like to confirm that these guidelines will not apply to RRSP issuers that electronically submit RRSP contribution receipts to the Agency. Therefore, the RRSP issuer will not be expected to retrieve contribution slips from the client.
However, the RRSP issuer will be expected to issue an amended or cancelled slip to the client. This is in addition to submitting an electronic cancellation or amendment with CRA through magnetic media.
Please note that IC 72-22R9 will be amended accordingly at a later date.
11. Consider the situation where a married couple gets divorced and one individual remarries. If that individual has a spousal RRSP which was established with the former spouse as the contributor, can the individual's current spouse contribute to the plan? If not, what is the basis in the Income Tax Act (the Act) for denying the contribution? If the current spouse does contribute to the plan and the individual makes a withdrawal less than 3 years after the individual's former spouse made a contribution to the plan, is the former spouse subject to the attribution rules?
Technically, there is no provision in the Act that would prevent the current spouse from making a contribution to the individual's spousal RRSP. However, administrative issues concerning the issuance of contribution receipts and tax information slips could prevent it.
Regarding the application of the attribution rules provided in subsection 146(8.3) of the Act. If the individual withdraws an amount from the plan within the three year period after the former spouse's last contribution, the former spouse will not be subject to the attribution rules provided the individual and the former spouse were divorced at the time of the withdrawal. If the current spouse made a contribution to the individual's plan before the withdrawal, the current spouse would be subject to the attribution rules. The current spouse's required income inclusion would be the lesser of the following amounts:
a) the amount of the withdrawal;
b) the total of all contributions the current spouse made in the year or in one of the two immediately preceding years to any of the individual's spousal RRSPs (the total is not limited to contributions made to the plan out of which the withdrawal came).
12. a) An investor with $45,000 of non-registered GICs makes a $10,000 RRSP contribution. The $10,000 RRSP will earn a higher rate of interest because the $50,000 threshold is exceeded.
I. Is there a prohibited advantage?
II. If so, does the RRSP issuer have to pay the penalty under subsection 146(13.1) of the Act?
III. If this $10,000 contribution were to start a new RRSP, would the CRA refuse to register the RRSP? If the client has $45,000 in GICs in an RRSP with the institution and contributes an additional $10,000 to the RRSP will the fact that the contribution is given a higher rate create an "advantage"?
12. b) Consider an investor with $45,000 of RRSP GICs who purchases a $10,000 non-registered GIC. Will the fact that the non-registered GIC will earn a higher rate of interest be considered an advantage?
12. c) Consider an investor with $45,000 of RRSP GICs who contributes another $10,000 to the RRSP. Will the higher rate of interest on the $10,000 RRSP GIC be considered an advantage?
These questions were submitted to the Income Tax Rulings Directorate for consideration. They arise from the hypothetical scenario in which a financial institution offers a higher rate of interest on GICs (registered or unregistered) when the total GIC investments (registered and/or unregistered) exceed the $50,000 threshold.
I. No, there is no prohibited advantage.
II. The RRSP issuer is not required to pay a penalty under subsection 146(13.1) of the Act.
III. In the absence of a prohibited advantage, there is no violation of the RRSP registration rules in subsection 146(2) of the Act. Accordingly, there would be no reason to deny registration of the plan
Subject to five enumerated exceptions, paragraph 146(2)(c.4) of the Income Tax Act (the Act) prohibits an RRSP from providing an advantage that is conditional on the existence of the plan to the annuitant or to someone not dealing at arm's length from the annuitant.
a) The RRSP issuer is not required to pay a penalty under subsection 146(13.1) of the Act.
I. In the absence of a prohibited advantage, there is no violation of the RRSP registration rules in subsection 146(2) of the Act. Accordingly, there would be no reason to deny registration of the plan.
Rationale: Subparagraph 146(2)(c.4)(ii) of the Act is one of the exceptions to the prohibition on advantages. The exception allows for an advantage that consists of "the payment or allocation of any amount to the plan by the issuer." As stated in Interpretation Bulletin IT-415R2, Deregistration of Registered Retirement Savings Plans:
For this purpose, a "prohibited advantage" is one extended directly to the annuitant or non-arm's length person, and which is not described in paragraph 146(2)(c.4). For example, it would include free trips, appliances, and interest-free loans, but would not include inducements offered within the plan such as a bonus rate of interest on an RRSP deposit
b) The RRSP is used to determine the individual's total investment balance, which in turn determines the individual's eligibility for the higher interest rate. Accordingly, we take the position that the advantage is conditional on the existence of the RRSP for purposes of paragraph 146(2)(c.4) of the Act. Because the individual receives a higher rate of interest outside of the plan, subparagraph 146(2)(c.4)(ii) does not apply. None of the other enumerated exceptions apply to this situation. Therefore, this would be considered a prohibited advantage subject to the penalty in subsection 146(13.1) of the Act such that the issuer would be liable to a penalty equal to the greatest of $100 and the amount or value of the advantage.
c) The answer to this question is the same as that to question a) III.
13. Have there been any changes in the 2003 taxation year filing requirements for the T3GR return for RRSP, RRIF and RESP trusts?
There are no changes to the filing requirements of the T3GR return for the 2003 taxation year. however, we are requesting that the list of taxable annuitants be submitted on paper or by CD-ROM and not by diskette. We are also asking you to indicate on the return, immediately above the identification area, whether the list was submitted by CD-ROM or on paper. The 2004 version of the T3GR return will be revised to provide a box for you to indicate this information. You should continue to send the list or the CD to us with the T3GR return on filing.
It should be noted that the list of annuitants that used to be filed as part of the requirements for the T3G return is no longer required to be filed, although it should still be maintained and available should we decide to request it as part of a subsequent review of the specimen plan.
14. I would like information on registered plans. When an annuitant becomes a non-resident of Canada, can he make transfers from an RRSP to a RRIF or from an RESP to an RRSP before he is 69 years old? What happens when he reaches 69? What are the general rules? What is going to happen when he dies? What slips do we have to file?
There is no provision in the Income Tax Act that prevents a non-resident of Canada from having an RRSP. When the annuitant of an RRSP becomes a non-resident of Canada, there are no tax implications to the annuitant or the RRSP other than the fact that non-resident tax may be required to be withheld on future payments made to the annuitant. For information on the withholding tax requirements applicable to payments made to non-residents of Canada, see Information Circular IC 76-12R4.
A non-resident annuitant can transfer funds from one RRSP issuer to another or to a RRIF carrier like a resident of Canada without tax consequences. However, we note that an RESP can only make an accumulated income payment (AIP) to a resident of Canada.
In the year the RRSP is required to mature, the same rules will apply to non-residents and residents. For information on the tax implications that apply when a non-resident annuitant of an RRSP dies, see Interpretation Bulletin IT-500R, Registered Retirement Savings Plans - Death of an Annuitant.
Can you clarify whether the RRSP contribution reporting is a reporting between the RRSP issuer or vendor and the CRA only? Does the trustee have to do anything with respect to this reporting?
CRA would like to confirm that RRSP issuers as defined in paragraph 3 of IC 72-22R9, Registered Retirement Savings Plans, are required to report RRSP contributions to CRA. However, the RRSP issuer may have an arrangement with another agent (possibly the trustee) as per paragraph 14 of the aforementioned information circular to report the RRSP contributions to CRA.
Similar to T4 reporting, CRA allows an employer to contract their payroll disbursements and even their T4 issuance to a payroll service company. But no matter what the arrangement is, the RRSP issuer (like the employer) is ultimately responsible and accountable for ensuring that the reporting requirements are met.
Please note that the Income Tax Regulations will be amended to outline the reporting requirements.
16. Clarification as to what exactly constitutes "errors" on a T550 Registration List (i.e. omitting an Apt # in an address, incorrect spelling of name) and the action determined by CRA to advise of any amendments to the original T550 filed (i.e. is a Supplementary Registration List necessary)?
How should a Supplementary Registration List (i.e. sometimes necessary back-dated/previous year registration) ultimately impact the T3GR filing for the subsequent taxation year? (i.e. impact to the 1st line on the T3GR asking what figures you had reported at the end of last year)
Errors on a T550 registration list refer to incomplete or invalid information. Some examples are: omission of SIN, invalid SIN, incomplete address, and putting in the estate or a company as the annuitant. This may lead to CRA not registering those contracts. CRA informs the issuer that some contracts are not registered, encouraging the issuer to verify the problem contracts to see if any human errors is involved (i.e. typo or incorrect name), so the problem list (supplementary list) may be corrected and be re-submitted for registration.
If some of the contracts are not registered by CRA, your T3GR filing for the year would not be accurate on field 712 (line 2) - number of contracts entered into in the year - and ultimately field 716 (line 6) - total number of contracts at the end of the year - will be changed. We do not require you to re-file the T3GR at this time, however, the following year's T3GR field 711 (line 1) - number of contracts as of December 31 of the previous year - should reflect the correct number of contracts, that is the adjusted number in field 716 (line 6) of the previous year.
17.Withholding Tax on Payments from a Registered Retirement Income Fund (RRIF)
[original question archived in May 2006, new questions and answers on topic can now be found at question #7 of the FAQs]
18. Any suggestion on how and what a trustee can do to close an RRSP or a RRIF specimen if the plan is no longer active and some of the annuitants cannot be located? Can the trustee pay the proceeds in court as abandoned property, if the issuer can prove that they have made several attempts, but still cannot locate the annuitants?
When the specimen is inactive (that is, the trustee is no longer marketing the specimen and there may or may not be any contributions made) and there are annuitants under the specimen whom you are unable to locate, you may wish to contact Human Resources Development Canada, Revenue Accounting, National Search Unit, 140 Promenade du Portage, 2nd floor, Phase 1V, Gatineau, QC, K1A 0J9 or call (613) 957-9052 for assistance in locating the annuitant.
You are not allowed to collapse the RRSP or RRIF arbitrarily. For an RRSP, you have to wait until the RRSP matures and proceed according to the contract terms, i.e. cash out the plan or transfer it to a RRIF. For a RRIF, at least the minimum amount must be paid out annually until the annuitant or legal representative of the annuitant instructs differently.
19. Is it an acceptable practice for a receiving institution to record the RRSP/RRIF specimen plan number instead of the individual plan number on a T2033 or Transfer Authorization for Registered Investments form when transferring funds into a new plan?
As you know, Form T2033 is only one of many ways to record transfers described in paragraph 146(16)(a) or 146.3(2)(e) of the Income Tax Act. Because none of these transfers are required to be made in prescribed form, RRSP issuers and RRIF carriers can record them using whatever method they choose. However, the transferor institution is required to ensure that all pertinent information needed for the proper administration of the plan is provided to the transferee institution.
Whether or not it is appropriate for the receiving institution to record the RRSP/RRIF specimen plan number in Part C of Area 1 of the form instead of the individual plan number would depend on the receiving institution's reasoning. If for whatever reason an individual plan number is not available at the time of the transfer, entering the specimen plan number would be appropriate. So long as the information provided by the receiving institution assists CRA in determining where the funds were transferred.
20. What is the deadline for 2003 RRSP contributions?
The 60th day, February 29, falls on a Sunday. Therefore, the deadline for making deductible contributions to a Registered Retirement Savings Plan (RRSP) for the 2003 tax year is Monday, March 1, 2004.
The Interpretations Act considers that a due date will be moved to the next business day if the due date falls on a Sunday, statutory holiday or a "non-work" day. Please note that the Act considers Saturday to be a non-work day in most provinces. For administrative purposes, the Agency has adopted the position that Saturday will be considered a non-work day in all provinces and territories.
Our Directorate has recommended to the Client Services Directorate, who is responsible for Publications, to communicate CRA's position in applicable publications to enhance accuracy and clarity. We note that the T4RSP and T4RIF Guide in your package does address this issue on Page 4 under the heading "Due Dates".
21. Our Systems staff have asked us if the CRA has any security requirements for the CD-ROM that we will be sending to CRA for the RRSP receipts in order to ensure that taxpayer privacy is protected?
A. Is there a requirement that the CD-ROM be encrypted?
B. Is there a requirement that the CD-ROM have a password that is sent separately to the CRA?
C. Are there any other security requirements? If so, please describe them.
At this time, there is no legal requirement to submit encrypted or password protected CD-ROMs to the CRA. However, we understand filers concerns with wanting to better protect client information.
For years, clients have filed their information returns via the Canada Post mail system with confidence. Canada Post's standards are high and all packages are treated as confidential. For clients who would prefer a higher level of comfort, we recommend that they use a bonded courier.
We are reviewing a few options for password protecting files and hope to be able to offer a standardized solution for the next filing program. Last year we processed 1.7 million information returns and you can well imagine the delays and problems and the increased cost that would be incurred if clients chose their own password or encryption tools.
Additional Questions and Answers
22. Where there are joint subscribers under an RESP plan, and one dies, whom do the contributions belong to? What if the deceased wills his contributions to someone other than the spouse? What if the joint subscribers are now divorced?
If there is no provision in the RESP contract spelling out what happens after the death of a joint subscriber, it becomes matter of contract, family and inheritance laws.
One potential difficulty of not spelling out what happens on the death of a joint subscriber is that you may have a hard time determining the amount of contributions made to the plan by each individual. Another one is determining when those contributions will come out - at the time of death or a later date? It is important to remember that when contributions come out for whatever reason, those contributions still count towards the limits for the beneficiary and, depending on the timing of the refund, the grant may have to be returned, and those amounts would count towards the grant limits for the beneficiary.
23. Subsequent to the sessions, a number of questions were raised concerning the application of the lump-sum withholding tax rates on RIF, LIF or Locked-in RIF withdrawals.
The following text will be appearing in the January 2004 edition of the Payroll Deductions Formulas for Computer Programs Guide (T4127):
We consider all periodic payments made from a RRIF, following an election to make withdrawals that are above the yearly minimum, to be a blended payment. In such cases, the elected part is subject to deductions. Use the rates that apply to non-periodic payments under section 103 of the ITA to calculate the deductions of tax. These rates will also apply when an individual makes a lump-sum withdrawal that is greater than the minimum during the year.
NOTE: The interpretation of the above paragraph in the original minutes was incorrect. In fact, only the excess amount (the elected portion) not the total blended payment is used to determine the appropriate lump sum tax rate. Apply this rate to the amount that is more than the minimum.
We wish to emphasize that lump-sum tax rates are only estimates. Recipients may have to pay additional tax on these amounts when they file their returns. The recipient may exercise his or her discretion and request that the payer increase the withholding tax rate in order to reduce or eliminate a future income tax liability.
Payers would not be required to deduct income tax from a lump-sum payment if a recipient's total earnings received or receivable during the calendar year, including the lump-sum payment, are less than the "claim amount" on the employee's Form TD1, Personal Tax Credits Return. This does not apply to lump-sum payments paid to non-residents.
Below are responses to the specific questions that were put forward to CRA for comment.
24. a) If a client has a RRIF and has requested 12 monthly payments then I understand that they would be taxed at the withholding rate applicable to the total amount. If however they decide part way during the year to request an additional withdrawal of say $4,000 can you confirm whether the payment would be taxed at 10% or at the higher rate based on the total amount for the year?
In the situation where an individual is receiving 12 monthly payments and then decides part way through the year to request an additional $4,000, we would view the additional $4,000 as a separate request and only require a withholding of 10 % on that specific withdrawal.
24. b) Also say the RRIF withdrawals for the year would be $14,500 and we deduct 20 % withholding tax from each payment and then the client in June requests an additional $4,000. Would we charge 30 % withholding tax on the $4,000 and would we then have to change our system to automatically accommodate 30 % tax on the remaining RRIF payments?
The response provided in a) would be applicable to this situation as well.
24. c) What amount of withholding tax should be deducted for withdrawals that are made on five (for example) consecutive days? If each withdrawal was a separate request, it was questioned as to whether the lower withholding tax rate would apply. Taking this a step further, what is CRA's position with respect to separate requests made on the same day? We have clients that either through the Internet or the call centre are requesting two or three separate withdrawals on the same day. In some cases, the person processing the withdrawal knows that another request has been made. However, if we do have knowledge, we have been deducting at the higher rate.
Where the recipient makes a series of requests in a short period of time with the intent of minimizing the amount of withholding tax, it is our position that the lump rate applicable to the total should be used. Moreover, in the situation where a number of requests are received on the same day, CRA would view these as one request and determine the withholding rate based on the total.
We agree that it will be difficult at times for payers to determine the appropriate lump-sum tax rate to apply in situations similar to these. If different individuals within your organization process the requests, we would expect the higher rate to be applied where the other requests are known at the time.
Payers will have to use their discretion. Ultimately, the tax liability will fall to the individual when filing his or her personal income tax return.
Technical References and Examples regarding the Transfer of the Eligible Part of a Designated Benefit Paid out of a RRIF
The technical rules applicable to RRIFs are found in section 146.3 of the Income Tax Act (the Act).
Definitions (according to subsection 146.3(1) of the Act
"Annuitant" under a RRIF at any time means:
a) the first individual to whom a RRIF carrier has entered into an arrangement to make payments under the RRIF;
b) after the death of the first individual, a spouse or common-law partner (survivor) of the first individual where the carrier agreed to continue to make payments under the arrangement to the survivor pursuant to an election by the first individual in the arrangement or in his or her will, or with the consent of the first individual's legal representative; and
c) after the death of the survivor, a spouse or common-law partner of the survivor where the carrier has agreed, with the consent of the survivor's legal representative, to continue to make payments under the arrangement.
"Designated benefit" of an individual in respect of a RRIF, means the total of:
a) amounts paid from the RRIF after the death of the annuitant to the decedent's legal representative
- that would be RRSP "refund of premiums" if they had been paid to the individual from an unmatured RRSP, and
- that are jointly elected to be designated benefits by the decedent's legal representative and the individual; and
b) amounts paid from the RRIF after the death of the annuitant to the individual that would be refunds of premiums if they had been paid to the individual from an un-matured RRSP.
To make an election under paragraph (a), the legal representative and qualified beneficiary must jointly complete and sign Form T1090, Death of a RRIF - Designated Benefit. A copy of the form has to be attached to the beneficiary's return and another to the deceased annuitant's final return.
Also applicable is the definition of "refund of premiums" according to subsection 146(1) of the Act.
"Refund of premiums" means:
a) any amount (except the part that is a "tax-paid amount") paid to a deceased annuitant's spouse or common-law partner under an unmatured RRSP of the annuitant due to the annuitant's death; or
b) any amount (except the part that is a "tax-paid amount") paid from any RRSP of the annuitant to an annuitant's child or grandchild after the annuitant's death if the child or grandchild was financially dependent on the annuitant at the time of death.
Legislative provisions (applicable provisions include subsections 146.3(5), (6), (6.11), and (6.2)).
This is the general taxing provision for amounts received from a RRIF. It requires a taxpayer to include in income for a year all amounts received by the taxpayer in the year from the RRIF except:
a) the part of the amount included in the income of another taxpayer by virtue of subsections 146.3(6) and (6.2);
b) an amount received in respect of the income of the trusteed RRIF for a year for which the trust was not exempt from tax by virtue of subsection 146.3(3.1); and
c) an amount that relates to interest, or to another amount included in income under another section of the Act and that would be a "tax-paid amount" under paragraph (b) of the definition "tax-paid amount" in subsection 146(1) if the RRIF was an RRSP.
This provision specifies that, where the annuitant of a RRIF has died, the annuitant is deemed to have received immediately before death, an amount out of the RRIF equal to the fair market value of RRIF property at the time of death.
This provision sets out the rules for determining the "eligible amount" of an individual for a year in respect of a RRIF for purposes of the deduction allowed under paragraph 60(l) of the Act for an RRSP contribution, or a RRIF or annuity purchase. The "eligible amount" is nil unless the individual is the spouse of the deceased annuitant, or a child or grandchild of the annuitant who was dependent on the deceased annuitant due to a physical or mental infirmity. Where the individual is such an individual, the "eligible amount" is computed by the formula:
A x [1 - (B - C)/ D ]
A. is the part of the designated benefit of the individual that is included in the individual's income under subsection 146.3(5).
B. is the minimum amount under the RRIF for the year.
C. is the lesser of:
- the amount included in the annuitant's income under subsection 146.3(5) for amounts received by the annuitant, and
- the minimum amount under the fund for the year
D. is the total of all designated benefits of individuals in respect of the RRIF that the individuals include in their incomes under subsection 146.3(5) for the year.
This provision sets out the rules for determining the maximum amount that may be deducted from the amount deemed to be received by an annuitant from the RRIF under subsection 146.3(6). This maximum amount is computed by the formula:
A x [1 - (B + C - D)/(B + C)]
A. is the total of all:
- designated benefits of individuals in respect of the RRIF;
- amounts that would be "tax-paid amounts" if the RRIF was an unmatured RRSP that are received by individuals who received designated benefits provided for by the fund; and
- amounts received by the deceased annuitant's legal representative that would be "tax-paid amounts" if the RRIF was an unmatured RRSP and that could be designated benefits if "tax-paid amounts" were not excluded from being treated as designated benefits.
B. is the fair market value of the RRIF property at the later of:
- the end of the first calendar year following the year of the annuitant's death; and
- the time after the last time that any designated benefit is received by an individual from the RRIF.
C. is the total amount paid from the RRIF after the death of the annuitant before the later time referred to in B.
D. is the lesser of:
- the fair market value of the RRIF at the time of the annuitant's death; and
- the sum of the amounts determined under B and C for the RRIF.
The following examples illustrate the application of the various provisions discussed.
1)The facts are as follows:
- the annuitant of a RRIF dies in June 2002;
- the annuitant did not receive any payments out of the RRIF in 2002;
- the fair market value of the RRIF at the time of the annuitant's death is $105,000;
- the minimum amount payable under the RRIF for 2002 is $5,000 (payable on December 1);
- in the RRIF contract, the annuitant named his spouse as the beneficiary of the RRIF;
- in December 2002, you receive a request to transfer the maximum amount of the designated benefit to the spouse's RRIF;
- a designated benefit of $109,000 is paid out of the RRIF in January 2003; and
- the minimum amount that would have been paid under the fund for 2003, had the last annuitant not died, is $6,000.
Based on the facts as described, the settlement payment out of the RRIF would be reported according to the instructions for Situation 1 on page 18 of the T4RSP and T4RIF Guide.
Specifically, a T4RIF slip would be issued to the annuitant's spouse for 2003, a designated benefit of $109,000 would be shown in box 16, the eligible amount calculation in Appendix C of the T4RSP and T4RIF Guide would be completed, and an amount of $103,000 (amount from line 10) would be shown in box 24.
As the annuitant received none of the minimum amount for 2003, the eligible amount equals the designated benefit minus the minimum amount for 2003. The spouse would include in income $109,000 and claim a paragraph 60(l) deduction of $103,000 for 2003. Consequently, the spouse would be required to pay tax on $6,000.
The same facts as in example 1 above, except that the annuitant's spouse is named as the beneficiary of the RRIF in the annuitant's will.
In this situation, you would report the settlement payment out of the RRIF using the procedure described in Situation 3 on page 19 of the T4RSP and T4RIF Guide.
Specifically, a T4RIF slip would be issued to the deceased annuitant for 2002, a deemed benefit of $105,000 would be shown in box 18, a second T4RIF slip would be issued to the annuitant's estate for 2003 to report the income earned in the RRIF from the date the annuitant died to the date of settlement, and an amount of $4,000 would be reported in box 22.
You are not required to calculate the eligible amount of the designated benefit in this situation.
In order to reduce the annuitant's deemed income inclusion and defer tax on as much of the settlement payment as possible, the annuitant's legal representative and spouse will have to:
- Designate the settlement payment of $109,000 that was made to the annuitant's estate as having been paid to the annuitant's spouse as a designated benefit. To do so, the annuitant's legal representative and the annuitant's spouse must jointly file form T1090, Death of a RRIF Annuitant - Designated Benefit.
- Request a reduction to the deemed benefit the annuitant is considered to have received in 2002. When filing the annuitant's 2002 return, the legal representative would complete chart 2 of the publication RC4178, Death of a RRIF Annuitant, and reduce the annuitant's required income inclusion accordingly. In this situation, the reduction would be $105,000.
- Add to the spouse's 2003 income, the amount of the reduction claimed on the annuitant's 2002 return. Consequently, the full amount of the settlement (i.e., $109,000) would be reported on the spouse' return for 2003.
- Determine the eligible amount of the designated benefit that can be transferred to the spouse's RRIF. To do this, the spouse would complete chart 3 of the publication RC4178. In this situation, only $103,000 would be eligible to be transferred to the spouse's RRIF. The spouse would claim a $103,000 deduction for 2003 and pay tax on the non-eligible amount of $6,000.
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