7 July 2004 External T.I. 2004-0078271E5 - RRSP Deduction - Judges

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: RRSP Deduction - Judges

Position: Application of the Act and the Regulations.

David Gourdeau
Deputy Commissioner for Federal
  Judicial Affairs							2004-007827
99 Metcalfe Street, 8th Floor						L. J. Roy, CGA
Ottawa ON K1A 1E3

July 7, 2004

Dear Mr. Gourdeau:

Re: Registered Retirement Savings Plan ("RRSP") Contribution

This is to inform you of the amount that a federal appointed judge may deduct in respect of contributions to an RRSP following the Legislative Proposals and Draft Regulations relating to Income Tax released on February 27, 2004 (the "Proposals").

Unless otherwise stated, all statutory references are to the Income Tax Act (the "Act").

Subsection 146(1) define the "RRSP deduction limit" for a taxation year as follow:

					A+B+R-C

A	is the taxpayer's "unused RRSP deduction room" at the end of the preceding taxation year,
	B	is the amount, if any, by which
a) the lesser of the "RRSP dollar limit" for the year and 18% of the                                                                              taxpayer's "earned income" for the preceding taxation year
     	exceeds the total of all amounts each of which is
b) the taxpayer's pension adjustment for the preceding taxation year in respect of an employer, or
c) a prescribed amount in respect of the taxpayer for the year,
	C	the taxpayer's net past service pension adjustment for the year, and
	R	the taxpayer's total pension adjustment reversal for the year.

Subsection 8309(2) of the Income Tax Regulations (the "Regulations") provides that the prescribed amount for a year is the lesser of the following amounts: (i) 18% of the portion of judge's salary received for the preceding year under the Judges Act in respect of which contributions are required under subsection 50(1) or (2) of that act less $ 600 and (ii) the money purchase limit for the preceding year less $600.

The last amount is prorated based on the number of months in the year for which such salary was received by the judge. For years preceding 2005, subsection 8309(3) provides that the prescribed amount is to be determined without subtracting $600 from the money purchase limit. However, the Proposals provide an amendment to subsection 8309(3) of the Regulations in order to allow the deduction of the amount of $600 as of 2004 instead of 2005.

The "money purchase limit" and the "RRSP dollar limit" for the calendar years thereafter are the following amounts:

				Money purchase limit		RRSP dollar limit

	2003	$15,500	$14,500
	2004	$16,500	$15,500
	2005	$18,000	$16,500
	2006	indexed	$18,000
	2007	indexed	Indexed

For the purpose of determining the judges prescribed amount pursuant to section 8309 of the Regulations for the 2003 calendar year, the money purchase limit for 2002 is deemed to be $14,500. According to the Explanatory Notes, this rule is to ensure that these individuals do not inadvertently receive $1,000 of additional RRSP room for 2003.

You will find attached examples which show how to calculate the RRSP deduction limit for the years 2003, 2004 and 2005.

I trust that the above information will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch

Example 1

An individual works as a judge for the years 2002, 2003 and 2005 and receives a salary of $198,000 in respect of which contributions are paid under subsection 50(2) of the Judges Act.

Calculation of the prescribed amount for 2003, 2004 and 2005 :

The prescribed amount for the 2003 taxation year in respect of the judge is of $14,500 being the lesser of the following amounts:

(i) (18% x $198,000) - $600 = $35,040 and
(ii) $14,500

The prescribed amount for the 2004 taxation year in respect of the judge is of $14,900 being the lesser of the following amounts:

(i) (18% x $198,000) - $600 = $35,040 and
(ii) $15,500 - $600 = $14,900

The prescribed amount for the 2005 taxation year in respect of the judge is of $15,900 being the lesser of the following amounts:

(iii) (18% x $198,000) - $600 = $35,040 and
(iv) $16,500 - $600 = $15,900

Calculation of the RRSP deduction limit

For the year 2003, the amount is nil (the lesser of the following amounts: (i) the RRSP dollar limit for 2003 ($14,500) and (ii) $35,640 (18% x $198,000), minus the prescribed amount ($14,500)).

For the year 2004, the amount is $600 (the lesser of the following amounts: (i) the RRSP dollar limit for 2004 ($15,500) and (ii) $35,640 (18% x $198,000), minus the prescribed amount ($14,900)).

For the year 2005, the amount is $600 (the lesser of the following amounts: (i) the RRSP dollar limit for 2005 ($16,500) and (ii) $35,640 (18% x $198,000), minus the prescribed amount ($15,900)).

Example 2

Effective April 1, 2003, a judge becomes eligible to retire with a full annuity. His contributions to the annuity scheme are reduced to 1% of salary in accordance with subsection 50(2.1) of the Judges Act. The judge's annual salary for 2003 was $198,000 and was paid in equal monthly installments. The portion of the judge's salary in respect of which contributions were required to be made at a rate of 7% of salary was $49,500 (3/12 x $198,000).

The prescribed amount for the 2004 taxation year in respect of the judge is $3,725 being the lesser of the following amounts:

(i) (18% x $49,500) - $600 = $8,310, and
(ii) ($15,500 - $600) x 3/12 = $3,725

The RRSP deduction limit to the judge for the 2004 taxation year is of $11,775 (the lesser of (i) RRSP dollar limit for 2004 ($15,500) and (ii) $35,640 (18% x $198,000), minus the prescribed amount of $3,725)).

Example 3

An individual is appointed to judicial office on November 1, 2003 with an annual salary of $198,000. The portion of the individual's salary received for the two months in 2003 is $33,000 (2/12 x $198,000). Before November 2003, the individual worked in a law firm and did not participate in a registered pension plan. His 2003 professional income as a lawyer was $150,000.

The prescribed amount for the 2004 taxation year in respect of the judge is $2,483 being the lesser of the following amounts:

(iii) (18% x $33,000) - $600 = $5,340, and
(iv) ($15,500 - $600) x 2/12 = $2,483

The RRSP deduction limit to the judge for the 2004 taxation year is of $13,017 (the lesser of (i) RRSP dollar limit for 2004 ($15,500) and (ii) $32,940 (18% x $183,000), minus the prescribed amount of $2,483)).