7-902151
Subject: Withdrawals from a registered retirement income fund ("RRIF") Canada-Barbados Income Tax Agreement (1980) ("Barbados Treaty")
This is in reply to your memorandum of September 26, 1989 requesting our comments on the tax implications where four or five quarterly payments are to be made under an RRIF to a person who has severed his residential ties with Canada and now resides in Barbados.
Our understanding of the particular situation involved is as follows:
24(1)
You enclosed with your memorandum a copy of a memorandum dated October 12, 1988 from the Specialty Rulings Directorate to the Ottawa district office and cite the following excerpt therefrom:
"We have generally taken the view that a pension plan is a plan that provides the beneficiary with a periodic payment for life. In our view, a RRIF accomplishes this where the annuitant draws only the
"minimum amount" as defined in paragraph 146.3(1)(b.1) of the Act in each year because this will provide for a schedule of equal payments to age 90".
You further cite the fact that the term "pension" is not defined in the Barbados Treaty and you then conclude, presumably based on this fact and the above quoted comments, that the subject payments do not appear to qualify for the reduced rate of 15% otherwise available under Article XIX of the Barbados Treaty; i.e., the 25% tax exigible under paragraph 212(1)(q) of the Act applies because the payments are to be made over a short period of time.
Our comments
The first sentence of the above quote continues to reflect our general position and we therefore agree that the subject payments do not represent pension payments for the purposes of the Barbados Treaty, given the fact that the term "pension" is not defined in that Treaty. That alone, however, does not in our view decide the issue. Article XIX of the Barbados Treaty also provides that the 25% Part XIII tax shall be reduced to 15% where the relevant payments constitute "annuities", which term is defined in that Treaty to mean
"stated sums payable periodically at stated times, during life or during a specified or ascertainable period of time, under an obligation to make the payments in return for adequate and full consideration in money or money's worth."
23 copy of the legal opinion, which we agree with, is attached for your information. With respect to the fact referred to in 6 above that the last payment in each case may differ slightly from the stated amounts, one could argue that such a last payment is not "a stated sum payable periodically at stated times"; i.e., it is paid once only. However, since such a last "makeup" payment is not unusual where an annuity is concerned, it is our view that it should be treated the same as the preceding payments.
Based on the above, it is our view 24(1) With respect to your request for some general guidelines that might be applied to all reciprocal tax treaties, we have the following comments.
Annuities
Where the term "annuity" is not defined in a reciprocal tax treaty, we normally look to the definition given to that term in subsection 248(1) of the Income Tax Act. Given that definition and the above-mentioned legal opinion, it is our view that equal payments made out of a RRIF (or RRSP or other retirement arrangement) at stated intervals (e.g. weekly, quarterly, annually) of three or more will generally constitute annuity payments for the purposes of those reciprocal tax treaties wherein the term "annuity" is not defined, or if defined, where the definition is similar to that in the Barbados Treaty or subsection 248(1) of the Act.
Pensions
21(1)(b)
for DirectorFinancial Industries DivisionRulings Directorate
c.c. Mr. E.E. Campbell Acting Director Provincial and International Relations Division