29 May 1995 Ministerial Correspondence 9506974 - INDIANS, RRSP

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.

ADM'S OFFICE (2) ADM 950424
RETURN TO 15TH FLOOR, ALBION TOWERS
AUTHOR
SUBJECT OR CORPORATE FILE

May 29, 1995

XXXXXXXXXX

Dear XXXXXXXXXX:

I am writing in reply to your letter of March 1, 1995, regarding the Indian Act tax exemption relating to investment income, registered retirement savings plans ("RRSP's") and pension plans for status Indians. I apologize for the delay in responding.

There has been some uncertainty as to how the decision of the Supreme Court of Canada in Williams (92 DTC 6320, (1992) 1 CTC 225) should apply in instances such as those you refer to. The Supreme Court noted that "the purposes of the conflict of laws have little or nothing in common with the purposes underlying the Indian Act." "The test for situs under the Indian Act must be constructed according to its purposes, not the purposes of the conflict of laws", and so it is not appropriate to simply adopt general conflict of laws principles when determining whether income is connected to a reserve. One general direction provided by the Supreme Court in Williams was that "an overly rigid test which identified one or two factors as having controlling force...would be open to manipulation and abuse". The Supreme Court rejected the situs of the debtor test as the sole test for determining whether the personal property of an Indian or band was situated on a reserve. The approach adopted in Williams requires the examination of all factors connecting income to a reserve to determine if the income is located on the reserve.

Based on the guidance provided in Williams, the Department recently reviewed its position on RRSP's. As a result of our review, we are of the view that when payments from an RRSP relate to income that was exempt from tax, the payments will usually be exempt from tax. If only a portion of the payments relate to income that was exempt, then the exemption will be prorated. This position is the same as the position adopted for registered pension plan benefits which was stated in the Indian Act Exemption for Employment Income Guidelines.

In the case of investment income, the connecting factors specific to an individual will have to be examined. It is our view that the location of a savings account on a reserve would not, in itself, be sufficient to exempt the interest income earned thereon. Similarly, the fact that the purchase of a guaranteed investment certificate or the investment in a term deposit takes place on reserve would not, in itself, be sufficient to exempt the interest income earned thereon. The factors to consider with respect to a non-registered pension plan will be the same as for any other unregistered investment.

Of course, when all potential factors indicate a reserve location, the investment income will be subject to exemption. For instance, when a status Indian lives on reserve, earns exempt income and makes deposits of funds into a savings account in a branch of a bank located on a reserve, that Indian's interest income earned on such account will be exempt from income taxation. On the other hand, when a status Indian lives off reserve and earns only taxable income, the deposit of funds into a savings account located on reserve by means of an automated teller machine located off reserve will not be sufficient to exempt the interest income earned on such account.

I trust that these comments will be of assistance.

							Yours sincerely,

							Denis Lefebvre
							Interim Assistant Deputy 							  Minister
							Policy and Legislation Branch

A.M. Brake
May 16, 1995
957-2133
4-950697