MAY 11, 2018
Mr. Arun Srinivas
Assistant Deputy Minister
Saskatchewan Finance
9th floor
|2350 Albert Street
Regina, SK S4P 4A6
Dear Mr. Srinivas:
Subject: Saskatchewan Pension Plan - Tax Treatment of Variable Benefit Potion
I am writing in response to your letter of December 21,2017 in which you request amendments to the Income Tax Act (the Act) to ensure that variable benefits paid from the Saskatchewan Pension Plan will be eligible for the pension income credit and for pension income splitting.
Officials from Finance Canada have had ongoing discussions with Saskatchewan Finance officials regarding the use of the existing tax framework for registered pension variable benefits as a model for tax accommodation of variable benefits paid out of the Saskatchewan Pension Plan. In conjunction with these discussions, we note that The Saskatchewan Pension Plan Amendment Regulations, 2018 introduced variable benefits options for members and surviving spouses. We understand that the variable benefit option will become available under the Saskatchewan Pension Plan beginning in 2019.
These changes included references to pertinent sections of the Income Tax Regulations in order to ensure that variable benefits paid out of the Saskatchewan Pension Plan will satisfy the tax rules (including "minimum amount" withdrawals) that apply to variable benefits paid out of money purchase registered pension plans. However, as the Saskatchewan Pension Plan is not a registered pension plan per se, but rather is prescribed as a "specified pension plan", the Act would need to be amended to deem the tax provisions applicable to money purchase variable benefits to also apply to the Saskatchewan Pension Plan's variable benefits.
Given those recent changes to your regulations and the fact that the Act currently permits registered pension plans to offer variable benefits to members, we believe that your request is supported in income tax policy terms. We do note, however, that any amendments to the Act would need to include conditions with respect to variable benefits that are consistent with the conditions applicable to benefits paid out of these registered plans.
Consequently, we are prepared to recommend to the Minister of Finance that the Act be amended such that variable benefits paid out of a specified pension plan to a taxpayer:
- would qualify for the pension income credit and pension income splitting after the taxpayer attains age 65; and
- would be subject to the rules in section 8506 of the Income Tax Regulations that apply to variable benefits paid out of money purchase registered pension plans.
If our recommendations are accepted, we would also recommend that these proposed amendments apply in respect of any variable benefit payments made from a specified pension plan after 2018. While I cannot offer any assurance that our recommendations with respect to this matter will be accepted, I hope that this statement of our intention is helpful to you.
Thank you for writing to us on this matter.
Yours sincerely,
Brian Ermewein
General Director - Legislation
Tax Policy Branch