While withdrawals from a registered retirement savings plan (RRSP) likely make up a regular portion of an elderly client’s income, for tax purposes, those funds are not the same as a pension, according to a recent decision by the Tax Court of Canada.
In 2011, Sarah Taylor, who was aged 65 at the time, tried to claim RRSP withdrawals as a pension credit on her tax return, according to court documents. Taylor had been making withdrawals once a year from the RRSP since her husband’s death in 2008. However, in 2011, Taylor made two withdrawals of $12,500 and $6,250 in order to make an “unusual tax payment.”
Taylor’s accountant argued that the withdrawals qualify for the pension credit because they are “annuity payments” and meet the definition of “pension income” under the Income Tax Act.
According to the Act, to qualify as an annuity the payments must be “payable on a periodic basis whether payable at intervals longer or shorter than a year and whether payable under a contract, will, or trust or otherwise.”
The accountant argued that the RRSP payments were recurring and therefor met the definition requirements.
However, the court rejected this argument, saying that while the payments were regular they all completed under Taylor’s direction. Furthermore, the court found that “there was no obligation to make payments on a recurring basis and Ms. Taylor could have directed that the entre RRSP fund be paid out to her in one lump sum.”
As well, Taylor’s accountant further argued that the definition of annuity in the Act is broad because of the phrase “whether payable under a contract, will or trust or otherwise.”
The court dismissed this argument stating that had the government intended the word “otherwise” to include RRSP payments, it would have stated so clearly in the Act.