30 November 2000 External T.I. 2000-0050615 - HONG KONG MANDATORY PR0VIDENT FUND

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Will the Mandatory Provident Fund Scheme Ordinance being established as of December 1, 2000 in Hong Kong qualify as a pension for purposes of the Act?

Position: Question of fact.

Reasons: Without a review of the particular plan documents and the facts surrounding a participant's employment, we are not able to provide definitive comments regarding a plan qualifying as a pension plan for purposes of the Act.

XXXXXXXXXX 2000-005061
M. P. Sarazin
Attention: XXXXXXXXXX

November 30, 2000

Dear Sir\Madam:

Re: Hong Kong's Mandatory Provident Fund Scheme Ordinance

This is in reply to your letter of October 9, 2000, requesting our views as to whether the Mandatory Provident Fund Scheme Ordinance (the "Plan") that will be implemented in Hong Kong as of December 1, 2000 will qualify as a pension plan for purposes of the Income Tax Act (Canada) (the "Act").

Comments

Opinions concerning proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. For more information concerning advance tax rulings, please refer to Information Circular 70-6R3 dated December 30, 1996, issued by the Canada Customs and Revenue Agency (the "Agency"). Copies of information circulars and interpretation bulletins are available on the Internet at the following site - http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. If there is a proposed immigration by a participant in the Plan, we may be able to provide an advance income tax ruling where the Plan documents are provided and the relevant facts surrounding the participant's employment as they relate to the Plan are clearly described in a request for an advance income tax ruling. Consequently, we can only provide you with the following general comments.

For purposes of the Act, the term "superannuation or pension benefit" is defined under subsection 248(1) of the Act to include any amount received out of or under a superannuation or pension fund or plan and any payment made to a beneficiary under such a plan or fund in accordance with the terms of, or resulting from the amendment or termination of, the plan or fund. The determination of whether a particular plan would constitute a superannuation or pension fund for purposes of the Act is a question of fact. Generally, a plan will be considered a superannuation or pension fund where contributions have been made to the plan by or on behalf of an employer or former employer of an employee in consideration for services rendered by the employee and the contributions are used to provide an annuity or other periodical payment on or after the employee's retirement in consideration for his or her employment services. In some cases, a plan may be considered a superannuation or pension fund where amounts have been contributed by a government. If it is determined that the Plan is a superannuation or pension fund for purposes of the Act, amounts received by a Canadian resident out of the Plan subsequent to his or her immigration to Canada would be included in the recipient's income under subparagraph 56(1)(a)(i) of the Act.

We note that the courts have generally found that a plan will not be a superannuation or pension plan where only the beneficiary of the plan has made contributions. The courts have in particular, frequently cited the 4th definition of pension as set out in the Shorter Oxford English Dictionary as support for their decisions. This definition provides that a pension is:

"4. An annuity or other periodical payment made, esp. by a government, a company, or an employer of labour, in consideration of past services."

Because of these decisions, we have accepted the general position that amounts received out of a foreign plan where only employee contributions have been made, are not superannuation or pension benefits.

The Agency's general views regarding the transfer of amounts from non-registered pension plans to a registered retirement savings plan ("RRSP") are found in Interpretation Bulletin IT-528 titled "Transfers of Funds Between Registered Plans". Paragraph 26 of IT-528 discusses the application of subparagraph 60(j)(i) of the Act which allows a deduction for the transfer of a superannuation or pension benefit (that is not part of a series of periodic payments) from a non-registered pension plan for services provided by an individual in a period throughout which that individual was not resident in Canada. To be eligible for a deduction under subparagraph 60(j)(i) for the transfer of the superannuation or pension benefit to an individual's RRSP, the individual has to include such a benefit in income for the year under subparagraph 56(1)(a)(i) of the Act and the transfer has to be made for the year the amount is included in the individual's income or within 60 days after the end of the year.

Whether the proposed amendments to section 94.1 would apply to the Plan is a question of fact. Consequently, we can only provide comments where the terms of the Plan and the facts relating to the participants in the Plan are made available.

We trust that our comments will be of assistance.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate