Special Election for RRSP's

A special election is permitted to non-resident recipients of the kinds of income otherwise subject to non resident withholding tax , namely:

• alimony and maintenance;
• certain superannuation or pension benefits;
• death benefits;
• unemployment insurance benefits;
• transitional assistance benefits under the Canada-US Auto Pact;
• prescribed benefits under a government assistance program;
• retirement compensation arrangement benefits or the purchase price of an interest in such an arrangement;
• retiring allowances;
• supplementary unemployment benefit plan payments;
• registered retirement savings plan payments;
• deferred profit sharing plan payments;
• registered retirement income fund payments.

The purpose of section 217 is to avoid placing the non-resident recipient of such payments (typically a retired individual) in a less favourable position than if the recipient were resident in Canada and entitled to the usual deductions permitted in determining taxable income and tax credits reducing tax payable under Part I of the Act.

This section therefore presents an interesting tax planning opportunity for non resident persons who have built up substantial Registered Retirement Savings Plan (RRSP) accounts.

By withdrawing the RRSP funds while a non resident, generally the lower of the non resident withholding tax rate and the amount taxable under section 217 will apply, providing the individual with a unique opportunity to withdraw RRSP accumulations at much lower rates of tax than would otherwise be payable if they were to return to Canada as residents and have the withdrawals taxed in the normal manner.

There are a number of budget changes introduced in 1996 which provide that in determining the Part I tax rate that applies where a non-resident elects under the section, the non-resident's non-Canadian income (and Canadian-source income subject to Part XIII but not eligible for the s. 217 election) is taken into consideration. This will not mean that Canada will tax that other income under Part I, but only that the foreign income may increase the rate of tax that applies to the non-resident's Canadian-source Part I income.

As well, the requirement that more than half a non-resident's income be included in the non-resident's taxable income earned in Canada, in order for any Part I tax credits to be available, has been deleted.

Click here to link to other RRSP information for non residents.

CREATIVE SOLUTIONS TO CROSS BORDER TAX ISSUES

Mark T. Serbinski Certified Public Accountants and Serbinski Partners PC, Chartered Accountants specialize in situations involving the taxation of U.S. citizens living abroad and Canadians living or working in the United States.  Please contact us for a complimentary initial review of your particular situation on a confidential basis. 

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