RRIF periodic vs. lump sum CRA interpretation

This is our main tax information forum which deals with topics concerning Canadians living and working in the U.S., U.S. citizens contemplating working in Canada, and all aspects of Canadian and U.S. income tax and related adminstrative issues.

Moderator: Mark T Serbinski CA CPA

Post Reply
dorinstancu
Posts: 1
Joined: Wed Jan 04, 2023 2:13 pm

RRIF periodic vs. lump sum CRA interpretation

Post by dorinstancu »

Hi Nelsona
Thank you for your help navigating the convoluted ways of the Canada-US immigration and taxation.

My question is regarding the conditions that need to be met in order for the payer of my RRIF (Tangerine Bank in my case) to apply the 15% withholding rate for Non-residents of Canada/US residents. I will be 62 this year, but I started to draw down from RRIF since 2017.
At the beginning of each year Tangerine is withdrawing RMD from the RRIF (most of the time) with a 15withholding % rate.
Until last year I was able to send a yearly letter informing Tangerine to withdraw an additional amount (max of 10% of value or 2 x RMD) to stay under the 15% withholding rate amount threshold.
Last year the bank withheld a 25% rate for amounts over RMD citing a RCA FAQ " if withdrawals are in the nature of instalments made in fulfillment of a single request by the annuitant, it is the Canada Revenue Agency's (CRA) position that the rate of withholding on each individual payment should be based on the total sum requested and not on each individual payment. In these situations, the CRA considers these periodic payments to be blended payments (i.e. part minimum amount and part instalment or excess)." [https://www.canada.ca/en/revenue-agency ... #ntvdncrls].

In my view the Canada-US tax convention clearly states "periodic pension payment means, in respect of payments that arise in Canada, a pension payment other than
(a) a lump sum payment, or a payment that can reasonably be considered to be an instalment of a lump sum amount, under a registered pension plan,
(b) a payment before maturity, or a payment in full or partial commutation of the retirement income, under a registered retirement savings plan,
(c) a payment at any time in a calendar year under a registered retirement income fund, where the total of all payments (other than the specified portion of each such payment) made under the fund at or before that time and in the year exceeds the total of..."
I've always used case c) as applicable for RRIF.

Is there a process step I am missing to be compliant with the Canada-US tax convention to benefit from the 15% reduced withholding rate?

Thank you
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: RRIF periodic vs. lump sum CRA interpretation

Post by nelsona »

Well, first off, a RRIF is not an RCA, so why they bring that up is pointless.

Second, although the CRA definition of "periodic" for treaty purposes is well defined, and unchanged for RRIFs in the ITCIA, getting individual banks (and individuals at those banks) to follow the rules is another matter. You experience is not unusual, except for the change in interpretation, probably arising from the former person in charge having retired. Even your definition is getting pretty murky, so I wouldn't rely much on that. In future discussions, stick to the one in the ITCIA that pertains to RRIFs

It's not the CRA definition or their interpetation that is in question, it is Tangerine's interpretation that matters. They will do what they feel comfortable doing, since they technically are on the hook for under-withholding a non-resident.

Your recourse, if improperly withheld, is to file an NR7-R at year end, which is not the best solution, but it does work. They will correctl apply the ITCIA at that time, and refund you the overage.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Post Reply