7 January 1997 External T.I. 9639715 - INTEREST PAID ON RRSP INVESTMENTS

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.

Please note that the following document, although believed to be
correct at the time of issue, may not represent the current

Position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut
ne pas représenter la position actuelle du ministère.

Principal Issues:

Reporting of amounts out of an RRSP

Position:

Routine explanations provided

Reasons:

Routine

XXXXXXXXXX 5-963971

Attention: XXXXXXXXXX

January 7, 1997

Dear Sirs:

Re: Bonus Interest and RRSPs and RRIFs

This is in reply to your letter of November 21, 1996 in which you asked us to clarify certain of the comments in our letter to you dated November 12, 1996.

1. In our previous letter we stated:

"We confirm that the positions expressed in our technical interpretation (5-923168) issued on November 30, 1992 continue to reflect the Department's views with respect to bonus interest paid on RRSP deposits. You have stated that the portion of any payment calculated on deposits held in an RRSP is to be reported on a T4RSP. We note that this statement is only correct with respect to the amount of bonus interest that is paid directly to the annuitant."

You have now asked if this means that the following are reported on a T4RSP

a) amounts paid directly to the annuitant of a depository plan?

b) amounts paid to the trusteed plan would be reported only when subsequently withdrawn by the annuitant?

We confirm that when a financial institution pays bonus interest directly to the annuitant of a depository RRSP in respect of the RRSP the amount paid must be reported on a T4RSP. However, please note that interest credited to a deposit account registered as an RRSP is not considered to be paid directly to the annuitant.

We confirm that when a financial institution pays bonus interest to a trusteed RRSP and the amount is subsequently paid to the annuitant of the RRSP the amount paid must be reported on a T4RSP.

2. In our previous letter we stated:

"Under the provisions of paragraph 146.3(2)(g) of the Income Tax Act (the "Act"), a benefit may not be conferred on an annuitant under a plan where the benefit is conditional in any way on the existence of the fund. However, subparagraph 146.3(g)(i) excludes it's application to a benefit that is required to be included in the annuitant's income. Generally, it would be our opinion that (an amount paid directly to the annuitant of a RRIF as bonus interest in respect of the RRIF) would be a benefit out of or under a RRIF and should be reported on a T4RIF. If it is determined that this payment is not such a benefit then the application of subsections 146.3(13) and 146.3(11) of the Act will result in the revocation of the registration of the RRIF."

You have asked; "How is it determined whether or not a payment `is not such a benefit' and who would make such a determination?

We would like to clarify our comments as follow:

The payment of bonus interest directly to an annuitant of a RRIF in respect of a deposit that is registered as a RRIF or is held by a RRIF will generally be a payment of a benefit as that term is used in paragraph 146.3(g) of the Act. However, we would generally consider that the provisions of subsection 146.3 of the Act would require such a benefit to be included in income. Accordingly we would not expect the payment of an amount as bonus interest in respect of a deposit would result in the revocation of a RRIF. Nevertheless, the determination of the nature of a payment first as a benefit and secondly as a taxable benefit are questions of fact. Accordingly to be as complete as possible in our original reply we added the caution that if the amount paid to the annuitant was a benefit but not a taxable benefit it could result in the revocation of the RRIF. As noted above, the determination of the nature of any payment is a question of fact that would have to be made by the carrier of the RRIF subject to verification by the Department through our normal audit of the plan.

3. Following from 2. you have asked if this means that the following are reported on a T4RIF

a) amounts paid directly to the annuitant of a depository plan?

b) amounts paid to the trusteed plan would be reported only when subsequently withdrawn by the annuitant?

We confirm that when a financial institution pays bonus interest directly to the annuitant of a depository RRIF in respect of the RRIF, the amount paid must be reported on a T4RIF provided it is a taxable benefit to the annuitant. We also confirm that, in our opinion, this would normally be the case.

We confirm that when a financial institution pays bonus interest to a trusteed RRIF and the amount is subsequently paid to the annuitant of the RRIF the amount paid must be reported on a T4RIF.

We trust these comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch