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: What is the withholding rate on a lump-sum payment from an RRSP to a UK resident?
Position: 25%
Reasons: Relief under Article 17(1) of the Canada-UK treaty applies only to periodic pension payments
XXXXXXXXXX
2013-047990
S.E. Thomson
(613) 957-2122
April 9, 2013
Dear XXXXXXXXXX
Subject: Service-Related Complaint, Reference number XXXXXXXXXX
We are writing in response to your Form RC193, Service-Related Complaint, received on March 15, 2013, concerning Registered Retirement Savings Plan (RRSP) and Locked in Retirement Account (LIRA) transfers to the United Kingdom (U.K.). This is also in reply to your email of February 28, 2013 in which you ask about the withholding tax rate on payments arising in Canada from a RRSP or LIRA to a resident of the U.K.
You explain that your client, aged XXXXXXXXXX, is a Canadian national, who has been living in the U.K. for over XXXXXXXXXX. He is a resident of the U.K. for U.K. and Canadian tax purposes. He has an RRSP and a LIRA. Your client is considering transferring the full amounts of the RRSP and LIRA to a U.K. pension plan. You would like to know what the withholding rate in Canada is on the transfer, if any.
Generally, a LIRA is an RRSP that meets certain requirements under the relevant provincial pension benefits act or the federally regulated Pension Benefits Standards Act, 1985 (PBSA). Whether or not lump sum payments can be made from the LIRA would depend on the terms of the plan. We assume that the LIRA and the RRSP have not matured. Generally, an RRSP must mature by the last day of the year in which the annuitant turns 71. On maturity, the funds must be withdrawn, transferred to a Registered Retirement Income Fund, or used to purchase an annuity.
A payment to a non-resident from an RRSP would be subject to withholding tax of 25% pursuant to paragraph 212(1)(l) of the Income Tax Act, except in certain situations which do not apply in this case. Under paragraph 1 of Article 17 of the Canada-U.K. Income Tax Convention (as amended by the Third Protocol, effective in respect of tax withheld at source on January 1, 2005) (Treaty), periodic pension payments arising in Canada and paid to a resident of the U.K. are taxable only in the U.K. There is nothing in the Treaty to govern lump-sum pension payments.
The term "periodic pension payments" is not defined in the Treaty. Paragraph 5 of the Income Tax Conventions Interpretation Act (ITCIA) defines the term "periodic pension payment" for purposes of Canada's income tax treaties, applicable to amounts paid after 1996. Under subparagraph 5(b) of the ITCIA, a payment from an RRSP before maturity, or in full or partial commutation of the retirement income under an RRSP, is considered NOT to be a periodic pension payment.
Therefore, a payment from a LIRA or an RRSP in the circumstances you describe would be subject to a 25% withholding tax under paragraph 212(1)(l) of the Act, and would not be eligible for a reduced rate under the Treaty. For your reference, we include a link to Information Circular, IC 76-12R6, Applicable Rate of Part XIII Tax on Amounts Paid or Credited to Persons in Countries with Which Canada Has a Tax Convention: www.cra-arc.gc.ca/E/pub/tp/ic76-12r6/ic76-12r6-e.pdf
We also note that the Canada-U.K. Income Tax Convention is currently under renegotiation see the following news release from the Department of Finance: www.fin.gc.ca/treaties-conventions/notices/uk-ru-eng.asp
We appreciate receiving comments and concerns about our programs and services. Your feedback is valuable in helping the CRA identify service-related issues and to seek ways on improving our services.
If you remain unsatisfied with the way your complaint has been examined, you may file a complaint with the Office of the Taxpayers' Ombudsman, by writing to Suite 724, 50 O'Connor Street, Ottawa ON K1P 6L2.
Additional information regarding the Taxpayers' Ombudsman can be found on the Web site at www.taxpayersrights.gc.ca/menu-eng.html.
If you have any further questions, please contact Ms. Sherry Thomson, Industry Sector Specialist at the Income Tax Rulings Directorate, by writing to 320 Queen Street, Place de Ville, Tower A, 16th Floor, Ottawa ON K1A 0L5 or by calling (613) 957-2122. Ms. Thomson is aware of our correspondence and will be pleased to assist you. Please use the reference number provided above on any related correspondence or enquiries.
We trust that our comments have been helpful.
Yours truly,
Olli Laurikainen, CA
For Director
International Division
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch
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