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.
Principal Issues:
Whether a lump sum payment from an Hong Kong pension plan can be transferred to an RRSP?
Position:
Based on the facts, the lump sum seems to be a superrannuation or pension benefit and the amount could have been transferred to an RRSP subject to the limits of paragraph 60(j).
Reasons:
Previous positions
June 1, 2004
SURREY TAXATION CENTRE HEAQUARTERS
Team 541-13 L. J. Roy, CGA
(613) 957-8968
Atttention: Merian Smith
2004-007416
XXXXXXXXXX (the "Individual")
This is in reply to your facsimile of April 30, 2004 wherein you requested our opinion regarding the transfer of an amount received by the Individual from the Hong Kong Government to a registered retirement savings plan ("RRSP"). Our understanding of the facts is as follows.
Unless otherwise stated, all statutory references herein are references to the Income Tax Act unless otherwise specified.
FACTS
1. The Individual was born in Hong Kong and resided there until XXXXXXXXXX when he moved to Canada. In XXXXXXXXXX, he started employment with the Hong Kong Government and was continuously employed until he resigned on XXXXXXXXXX.
2. As a civil servant with the Hong Kong Government, the Individual has accrued pension benefits under the Hong Kong Old Pension Scheme ("Pension Scheme") for the whole period of employment. The Pension Scheme is a defined benefit pension scheme funded entirely by the Hong Kong Government as the employer.
3. Pursuant to the Pension Scheme, an employee who resigns from service after completing not less than 10 years of qualifying service is eligible for a deferred pension. For an officer appointed to the services before July 1, 1987, the deferred pension benefits are payable when the employee attains the age of 55.
4. The annual pension is calculated by multiplying each month of an employee's pensionable emoluments and a pension factor as follows:
Highest annual emoluments X Length of pensionable X Pension factor
attained prior to resignation service in months
5. Pursuant to the Pension Scheme, a participant can elect to have his annual pension converted into a reduced pension together with a commuted lump sum pension gratuity equal to 14 times the amount of annual reduction. This option must be made earlier than the date on which the deferred pension becomes payable.
6. In XXXXXXXXXX, the Individual elected to convert his annual pension into a reduced pension together with a commuted lump sum pension gratuity. In XXXXXXXXXX, he received an amount of $XXXXXXXXXX as commuted lump sum pension gratuity, which he reported on line 130 (other income) of his XXXXXXXXXX Income Tax Return.
7. The taxpayer is of the view that the amount qualified as a retiring allowance. Since at the time of filing his XXXXXXXXXX Income Tax Return, he was not aware that part of the retiring allowance could be transferred to an RRSP, he is now requesting that his XXXXXXXXXX RRSP contribution of $XXXXXXXXXX be considered a transfer pursuant to paragraph 60(j.1). Also, he is requesting that the Canada Revenue Agency ("CRA") allows him to transfer the remaining balance of the eligible portion of $XXXXXXXXXX to his RRSP pursuant to paragraph 60(j.1).
Retiring allowance is defined in subsection 248(1) to mean an amount (other than a superannuation or pension benefit, an amount received as a consequence of the death of an employee or a benefit described in subparagraph 6(1)(a)(iv)) received by a taxpayer on or after retirement of a taxpayer from an office or employment in recognition of the taxpayer's long service or in respect of a loss of an office or employment of a taxpayer, whether or not received as, on account or in lieu of payment of, damages or pursuant to an order or judgment of a competent tribunal.
Since the definition of "retiring allowance" in subsection 248(1) carves out superannuation or pension benefits, we must first establish if the lump sum pension gratuity received by the taxpayer is a superannuation or pension benefit. For purposes of the Act, the term "superannuation or pension benefit" is defined under subsection 248(1) 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.
Based on the information provided, it seems that the lump sum pension gratuity received from the Pension Scheme would be a superannuation or pension benefit. Consequently, we are of the view that the lump sum received could not be a retiring allowance. Also, the amount received by the Individual would have to be included in his income for the year under subparagraph 56(1)(a)(i) unless a provision of the income tax convention between Canada and the other country applies to exclude the amount from income. However, Canada does not have a tax treaty with Hong Kong and Canadian courts have confirmed that the income tax convention between Canada and China does not apply to Hong Kong.
The CRA's general views regarding the transfer of amounts from non-registered pension plans to an RRSP are found in Interpretation Bulletin IT-528 Transfers of Funds Between Registered Plans. Paragraph 26 of IT-528 discusses the application of subparagraph 60(j)(i) 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 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.
In the situation you described, we are of the view that, had the Individual transferred the lump sum pension gratuity received to an RRSP within 60 days after December 31, 2003, he would have been eligible for a deduction under subparagraph 60(j)(i) for the portion attributable to services he rendered during the period he was not resident in Canada.
Subsection 146(22) allows Minister to deem an RRSP contribution made by an individual after the first 60 days in a year to have been made at the beginning of the year. Depending on the circumstances, such an authorization could, among others, permit the Individual to designate and deduct the contribution under paragraphs 60(j), (j.1) or (l) for the preceding year to the individual had received in the preceding year the qualifying income required to make such a designation.
In this regard, the TOM 39(1)3 provides guidelines to determine whether, pursuant to subsection 146(22), it is appropriate to allow an administrative relief.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the CRA's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at (819) 994-2898. The severed copy will be sent to you for delivery to the client.
We trust the above comments will be of assistance to you.
Ghislain Martineau
Section Manager
for Division Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch
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