2021-0878661E5 Canadian tax on lump sum RRSP payments

Principal Issues: What is the Canadian withholding tax rate applicable to lump sum RRSP payments to a resident of New Zealand.

Position: 25% Canadian withholding tax with no reduced rate pursuant to the Canada-New Zealand Income Tax Convention.

Reasons: The 15% reduced tax rate, pursuant to Article 17 of the current Canada-New Zealand Income Tax Convention (signed on May 3, 2012 and effective August 1, 2015), only applies to periodic pension payments.

Author: Argento, Angelina
Section: 212(1)(l), Article 17 of the Canada-New Zealand Income Tax Convention

XXXXXXXXXX                                                               2021-087866
                                                                                       Angelina Argento

December 22, 2021

Dear XXXXXXXXXX:

Re: Canadian withholding tax on lump sum RRSP payments to resident of New Zealand

This is in reply to your letter of January 14, 2021 wherein you ask the Income Tax Rulings Directorate (“Directorate”) what is the Canadian withholding tax rate applicable to lump sum payments from a Canadian registered retirement savings plan (“RRSP”) to a resident of New Zealand.

This technical interpretation provides general comments about the provisions of the Income Tax Act (“Act”) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC70-6R11, Advance Income Tax Rulings and Technical Interpretations.

You note that the Information Circular IC76-12R6 “Applicable Rate of Part XIII Tax on Amounts Paid or Credited to Persons in Countries With Which Canada Has a Tax Convention” dated November 2, 2007 (“IC76-12R6”) stated, in Appendix C, that a lump sum RRSP payment to a resident of New Zealand is subject to a 15% Canadian withholding tax. You also note that two CRA tax interpretations state that the lump sum withholding tax rate is 25%.

One of those interpretations, CRA Document 2013-0509751E5 dated October 3, 2014, states that, pursuant to the Convention between Canada and New Zealand for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income signed on May 3, 2012 (and effective August 1, 2015) (“Current Treaty”), the reduced 15% Canadian withholding tax rate only applies to periodic pension payments. Please note that a protocol to the Current Treaty was signed on September 12, 2014, but the amendments provided in this protocol only affect specific government pensions arising in New Zealand and did not change the Canadian withholding tax rate on payments from a Canadian RRSP.

CRA Document 2013-0509751E5 also mentions that a 15% Canadian withholding tax rate on lump sum withdrawals from a Canadian RRSP to a resident of New Zealand reflected the law as it existed prior to the entry into force of the Current Treaty. Under the Current Treaty, lump sum RRSP payments to a resident of New Zealand are not eligible for a reduced rate of withholding tax under Article 17 and, therefore, are subject to a Canadian withholding tax at the rate of 25% under paragraph 212(1)(l) of the Act. Our position as reflected in CRA Document 2013-0509751E5 has not changed.

On June 21, 2021, IC76-12R6 was revised because of changes to Canada’s income tax conventions and the introduction of Form NR301, Declaration of Eligibility for Benefits Under a Tax Treaty for a Non-Resident Taxpayer, Form NR302, Declaration of Eligibility for Benefits Under a Tax Treaty for a Partnership With Non-Resident Partners, and Form NR303, Declaration of Eligibility for Benefits Under a Tax Treaty for a Hybrid Entity.

IC76-12R7 (available at https://www.canada.ca/en/reven...) provides a link to the CRA Part XIII Tax Calculator, which provides current withholding tax information. The calculator can be found at https://www.canada.ca/en/reven.... The calculator indicates that the Canadian withholding tax rate applicable to lump sum payments from a Canadian RRSP to a resident of New Zealand is 25%.

We trust our comments will be of assistance.

Yours truly,

Marie Claude Routhier
Section Manager
for Division Director
International Tax
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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