16 April 1999 External T.I. 9900165 - RRSP WITHDRAWALS BY YUKON INDIAN

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: The tax treatment of RRSP withdrawals by a Yukon Indian whose income which was subject to a remission order which expired on December 31, 1998.

Position: Withdrawals made after December 31, 1998, are taxable. Withdrawals made before January 1, 1999, will usually be subject to the Remission Order to the extent that the withdrawal relates to income that was subject to the Remission Order.

Reasons: As of January 1, 1999, there is no longer any statutory basis to forgive the taxes earned by these Yukon Indians.

XXXXXXXXXX 	J. Gibbons
		5-990016
Attention:  XXXXXXXXXX 

April 16, 1999

Dear Sir and Madam:

We are replying to your letter of December 31, 1998, in which you requested our views on the application of the rules for a “registered retirement savings plan” (RRSP) to a hypothetical First Nation individual (the “FN individual”). In this regard, you ask us to assume the following facts:

• The FN individual is an “Indian,” as defined in the Indian Act, who resides in the Yukon on a Reserve, Land Set Aside, or Settlement Land.
• The FN individual is a member of the Yukon First Nation that has signed a Final Agreement and a Self-Government Agreement.
• The FN individual’s employment income is subject to the Income Tax Remission Order (Yukon Territory Lands) P.C. 1995-197, February 7, 1995 (SI/95-18) (the “Remission Order”).
• The FN individual has contributed to an RRSP account in respect of his employment income. The RRSP account is at a bank, which is not located on a reserve, Land Set Aside, or Settlement Land.

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 ruling request submitted in the manner set out in Information Circular 70-6R3. The following comments are, therefore, of a general nature only.

You have asked us whether employment income would be included in the FN individual’s “earned income” (as defined in subsection 146(1) of the Income Tax Act) even if the Part I tax on such income (which income we will refer to as “tax-remitted income”) has been remitted pursuant to the Remission Order. Our position on this issue was set out in Technical Interpretation 9607685, to which you have referred in your submission. In this regard, we agree with your conclusion. To summarize, a remission of tax by the Governor General in Council remits tax paid or payable under the Income Tax Act but does not “exempt” income from income tax. Accordingly, tax-remitted income is included in the computation of “earned income” provided that it otherwise qualifies for inclusion pursuant to subsection 146(1).

In regard to your questions concerning the income tax treatment of withdrawals made from an RRSP that relate to tax-remitted income, the answers depend on the date that the withdrawals are made. Since the Remission Order expired on December 31, 1998, it is our view that all RRSP withdrawals after this date are taxable. The effect of the Remission Order is to tax FN individuals as if they were living on a reserve and thus subject to section 87 of the Indian Act. Accordingly, the expiration of the Remission Order on December 31, 1998, placed an FN individual in the same position as an individual losing his or her eligibility for exemption under section 87 of the Indian Act. In this regard, we refer you to Technical Interpretation 9806857, which indicates that, once an individual is no longer eligible under section 87 of the Indian Act, all amounts received by him or her from an RRSP are subject to income tax, regardless of the previous status of the RRSP funds. However, in line with the treatment outlined in Technical Interpretation 9806857 for RRSP withdrawals by Indians who are exempt under section 87 of the Indian Act, RRSP withdrawals made by FN individuals before January 1, 1999, which would include investment income earned in the RRSP, will usually be subject to the Remission Order to the extent that the withdrawal relates to tax-remitted income.

We trust that these comments will be of assistance.

Yours truly,

J.F. Oulton, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate

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