Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: 1) Whether income received by an individual under the age of 65 out of a RRIF is eligible for the pension tax credit. 2) Whether there is a mechanism similar to the PAR, recreating contribution room, where amounts are withdrawn from an RRSP.
Position: 1) No. 2) No.
Reasons: 1) Amounts received out of a RRIF by an individual under the age of 65 are not "qualified pension income" under the Income Tax Act unless received as a result of the death of the individual's spouse or common law partner. 2) No such law exists.
2008-027368
XXXXXXXXXX Mike Thomson
(613) 957-3496
June 10, 2008
Dear XXXXXXXXXX :
Re: Pension income amount and PARs/ RRSP withdrawals and contribution room.
We are writing in response to your letter dated March 26, 2008, wherein you requested our comments with respect to the splitting of pension income and pension adjustment reversals ("PARs") as well as registered retirement savings plan ("RRSP") withdrawals and contribution room.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advance Income Tax Ruling", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the Internet at http://www.cra-arc.gc.ca/formspubs/menu-e.html. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office, a list of which is available on the "Contact Us" page of the CRA website. We cannot comment on your specific situation. However, we are prepared to provide the following general comments.
The Income Tax Act (the "Act") allows a taxpayer who has not reached age 65 by the end of the calendar year to claim a pension income credit, and to split eligible pension income with his or her spouse or common-law partner, if the taxpayer has received "qualified pension income". The Act specifically defines "qualified pension income" and payments out of a registered retirement income fund ("RRIF"), other than those that are received as a consequence of the death of the taxpayer's spouse or common-law partner, are not included in the definition. Accordingly, a taxpayer under the age of 65 receiving a payment out of a RRIF, other than as a consequence of the death of the taxpayer's spouse or common-law partner, is not eligible for the pension income credit and in the case of a married individual is not eligible to split his or her RRIF payments with his or her spouse or common-law partner.
The definition of RRSP deduction limit under the Act includes an addition for PAR's and a deduction for pension adjustments ("PA's"). As stated in the frequently asked questions on the PAR on the CRA website: the RRSP/PA system ensures that an individual's annual contribution to a RPP, DPSP or RRSP will not exceed 18% of earned income (up to a yearly limit). Accordingly, all employees at comparable income levels will have access to comparable tax assisted savings. The PAR is used to restore an individual's RRSP room when a member terminates their membership in a benefit provision of a registered pension plan or deferred profit sharing plan. For further information on the PAR see the Pension Adjustment Reversal Guide - RC4137.
There exists no similar provision in the RRSP legislation that adjusts (increases) RRSP contribution room when amounts are withdrawn from an RRSP.
The Canada Revenue Agency is responsible for administering and enforcing the Act and the Income Tax Regulations as enacted by Parliament. Any proposed changes to tax policy or amendments to legislation would have to be considered by the Minister of Finance and approved by Parliament.
We trust that our comments will be of assistance to you.
Yours truly,
Mary Pat Baldwin, CA
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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