| 19(1) | File No. 5-9689 |
| Maureen Shea-DesRosierss | |
| (613) 957-8953 |
April 4, 1990
Dear Sirs:
Canada-U.S. Income Tax Convention ("U.S. Treaty") Withholding Tax on Payments Made under a Registered Retirement Income Fund ("RRIF")
This is in reply to your letter of February 28, 1990 concerning the applicable withholding tax rate to payments made under an RRIF to a resident of the United States.
Our Comments
1. Under Article XVIII(3) of the U.S. Treaty, any periodic or other payment under a retirement plan such as an RRIF is a "pension". However, the reduced 15% rate under Article XVIII(2)(a) of the U.S. Treaty applies only where the payment is periodic.
2. Under the definition of "annuities" in Article XVIII(4) of the U.S.-Treaty, excluded therefrom is any annuity the cost of which was deductible for the purposes of taxation in Canada. In our view, this excludes all annuity payments under an RRIF in that the annuity is purchased with RRIF funds that originated from contributions that were deductible.
For the reasons given in 1 and 2 above, it is our opinion that payments to a U.S. resident under an RRIF will qualify for the reduced 15% tax only if they represent periodic payments. Otherwise, they are subject to a 25% tax under paragraph 212(1)(q) of the Income Tax Act.
We trust the above comments will be of assistance to you.
Yours truly,
Wayne Douglasfor DirectorFinancial Industries DivisionRulings Directorate