2016-0629341I7 Split-pension amount – withholding waivers

Principal Issues: Does subsection 153(1.3) of the Act preclude the Minister from considering any request to reduce withholding of tax where a taxpayer has made/expects to make a joint election to split pension income pursuant to section 60.03 of the Act?

Position: Paragraph 153(1.3) only precludes the Minister from considering the joint election as a basis for determining a lesser amount of withholding under subsection 153(1.1).

Reasons: Paragraph 153(1.3)(a).

Author: Agarwal, Lata
Section: 153(1), (1.1), (1.3) and (2), 60.03, 180.2

                                                                                                                                             June 13, 2016

      Martine Gautreau                                                                                                           HEADQUARTERS
      Telephone Programs Division                                                                                        Income Tax Rulings
      Taxpayer Services Directorate                                                                                       Directorate
      Assessment, Benefit, and Service Branch                                                                     Lata Agarwal, CPA, CMA, MBA

                                                                                                                                             2016-062934

      Application of subsection 153(1.3) to subsection 153(1.1)

We are writing in response to your email of January 28, 2016, in which you asked whether subsection 153(1.3) of the Income Tax Act (the “Act”) prevents the Minister from considering a request for a waiver from withholding under subsection 153(1.1) of the Act for purposes of Part I.2 tax where a joint election is made by a pensioner and pension transferee under section 60.03 of the Act to split the eligible pension income of the pensioner. You describe that taxpayers submit requests on Forms T1213 and T1213 (OAS) for waiver from withholding for purposes of subsection 153(1) and subsection 180.2(3) of the Act, respectively. In this regard, you provided hypothetical examples where the taxpayers request a reduced withholding amount based on a reduction in net income that is attributable to a joint election to split eligible pension income.

You advise that for purposes of the withholding requirements under subsection 153(1) of the Act, you generally do not grant a waiver from withholding when a pensioner and pension transferee make a joint election under section 60.03 of the Act. In addition, you refer to subsection 180.2(6) of the Act, which provides that certain provisions, including subsection 153(1.1) of the Act apply to Part I.2 with any modifications that the circumstances require. In this regard, you ask whether subsection 153(1.3) of the Act can extend to Part I.2 even though it is not specifically referred to in subsection 180.2(6) of the Act.

Our comments

Withholding under subsection 153(1) of the Act

In general, subsection 153(1) of the Act requires every payer of certain amounts including, for example, remuneration, pension benefits, etc., at any time in a taxation year, to withhold from these payments an amount on account of the payee’s Part I or XI.3 tax as applicable, and remit that amount to the Receiver General. Moreover, under subsection 153(1.1) of the Act, where the Minister is satisfied that the withholding of the amount that would otherwise be required under subsection 153(1) of the Act would cause undue hardship, the Minister may determine a lesser amount that would be deemed to be the amount to be withheld. An election pursuant to section 60.03 of the Act permits a pensioner to transfer a portion of the pensioner’s pension income to a pension transferee and thus reduce the pensioner’s Part I income. Where a pensioner and pension transferee make a joint election under section 60.03, subsection 153(2) of the Act deems the amount withheld under subsection 153(1) of the Act on account of the pensioner’s tax in respect of the split-pension amount, to be withheld on account of the pension transferee’s tax and not on account of the pensioner’s tax under Part I of the Act for the taxation year.

Where a joint election under section 60.03 of the Act is made or expected to be made, paragraph 153(1.3)(a) of the Act provides that the Minister shall not consider the joint election under section 60.03 of the Act as a basis for computing a lesser amount under subsection 153(1.1) for the taxpayer. In other words, where a taxpayer requests a reduced amount of withholding, the joint election under section 60.03 of the Act is not to be considered as a basis for any determination of the lesser amount to be deducted at source under subsection 153(1.1) of the Act. It is worth noting that it is the whole circumstance of the joint election that the Minister must not consider as a basis for a reduced withholding amount. Accordingly, when determining a reduced withholding amount under subsection 153(1.1), no consideration can be given to the reduction of the pensioner taxpayer’s Part I income that results from the joint election under section 60.03 of the Act or the impact of the deeming provision under subsection 153(2) of the Act.

However, subsection 153(1.3) of the Act does not preclude the Minister from considering a waiver request under subsection 153(1.1) of the Act, where the request is made for reasons other than the joint election under section 60.03 of the Act. For example, where a pensioner expects that his/her tax liability will be significantly reduced as a result of an increased non-refundable tax credit relating to a large charitable gift made during the year, the pensioner may make a request under subsection 153(1.1) of the Act. In such a situation, the joint election under section 60.03 of the Act would not be considered in the Minister’s determination of a reduced withholding under subsection 153(1.1) of the Act.

Withholding for purposes of Part I.2 of the Act

Subsection 180.2(3) of the Act requires that tax be withheld from federal Old Age Security (“OAS”) benefits in respect of an individual’s Part I.2 tax. In general terms, under subsection 180.2(4) of the Act, the amount to be withheld from an individual’s current year's OAS payments is computed by reference to the individual's adjusted income in each of the two preceding years. An individual’s “adjusted income” is defined in subsection 180.2(1) of the Act, generally as the individual’s income under Part I of the Act subject to certain adjustments described in paragraphs (a) and (b) of that definition.

Moreover, pursuant to subsection 180.2(6) of the Act, subsection 153(1.1) of the Act applies to the withholding obligations under Part I.2 of the Act with any modifications that the circumstances require. In this regard, for purposes of Part I.2 of the Act, subsection 153(1.1) of the Act would be modified to refer to subsection 180.2(3) of the Act such that a request may be made to the Minister to determine a lesser amount to be deemed as the amount to be withheld for purposes of Part I.2 of the Act. However, given that the amount to be withheld under Part 1.2 of the Act is computed by reference to an individual’s adjusted income (i.e., income under Part I of the Act subject to the above-referenced adjustments), in our view, any circumstance that impacts Part I income would have a consequential impact for purposes of Part I.2 of the Act. Since subsection 153(1.3) of the Act applies such that, no consideration can be given to the reduction of the pensioner taxpayer’s Part I income that results from the joint election under section 60.03 of the Act, it would follow that a similar outcome would result for purposes of withholding under Part I.2 of the Act.

Accordingly, no consideration can be given to the joint election under section 60.03 of the Act for purposes of determining a reduced withholding amount in respect of Part I.2 tax.

We trust that these comments will be of assistance.

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Yours truly,

Bob Naufal
Manager
Administrative Law Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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