The taxpayer in Charrier v. Quebec (2010 EXP-2783) contributed $5,970 to his spouse's RRSP in 2005, which he deducted, and a year later the amount was withdrawn. The financial institution made the applicable source deductions and remitted the balance to the taxpayer's spouse. Later in the year, the spouses separated. Under the s. 146(8.3) attribution rule, the taxpayer was taxed on the amount of the withdrawal because they were not living separate and apart at the time of withdrawal. However, it was for his ex-spouse that the taxes were withheld at source. The Court of Quebec ruled in favor of the contributor in a decision animated more by considerations of fairness than by an analysis of the legislative provisions.
Does the tax treatment indicated above of withholding tax reflect the federal tax provisions? CRA responded:
Paragraph 153(1)(j) provides that any person paying a payment out of or under an RRSP must deduct or withhold from the payment the amount determined in accordance with the prescribed rules and must remit that amount to the Receiver General on account of the payee’s tax. In the situation described, the deductions are therefore made from the lump sum payment and designated as being for the account of the person receiving the amount, being the RRSP annuitant. No provision of the Act provides a link between the withholding tax on the payment to the annuitant and the attribution rule in subsection 146(8.3).