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: Is a pension paid from a provincial supplemental pension plan eligible for pension income splitting purposes?
Position: Question of fact. Based on the facts, no.
Reasons: A pension paid from the provincial supplemental pension plan would appear to be an unfunded supplemental plan as defined in paragraph 118(8)(f) of the Act. Accordingly, pensions paid from the plan would not be "pension income" or "qualified pension income" as defined in subsection 118(7) and therefore would not be "eligible pension income" for purposes of the pension income splitting legislation in section 60.03 of the Act.
XXXXXXXXXX 2008-029994
March 9, 2009
Dear XXXXXXXXXX :
Re: Income Splitting - Supplementary Pension Benefits
This letter is in response to your letter dated November 4, 2008 wherein you request our opinion concerning whether a pension paid from a supplementary pension plan is eligible for pension income splitting, pursuant to section 60.03 of the Income Tax Act (the "Act").
In your letter, you provide the following facts concerning the supplemental pension plan (the "Plan") that is the subject of your query.
1) The Plan was created by an Order in Council approved by the provincial Lieutenant Governor in Council.
2) Employer and employee contributions are made, in accordance with the Plan, to an account that is part of the provincial consolidated revenue fund (CRF).
3) There is no outside custodian and no formal trust has been established, in respect of contributions made under the Plan.
In your letter you outlined what appears to be an actual existing situation or proposal. Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature and are not binding on the Canada Revenue Agency (CRA).
Section 60.03 of the Act permits an individual receiving eligible pension income to split that income with the individual's spouse or common-law partner, provided certain conditions are satisfied. For purposes of section 60.03 of the Act, "eligible pension income" has the meaning assigned by subsection 118(7) of the Act and is generally defined as the "pension income" received in a taxation year by an individual who is 65 years of age or older, and where an individual is under 65 years of age, the "qualified pension income" received by the individual in a taxation year. The terms "pension income" and "qualified pension income" are defined in subsection 118(7) of the Act.
Subsection 118(8) of the Act specifically excludes certain types of income from the definitions of "pension income" and "qualified pension income". In particular, paragraphs 118(8)(e) and 118(8)(f), exclude payments received out of a retirement compensation arrangement (RCA) and an unfunded supplemental plan, respectively . In general, paragraph 118(8)(f) defines an unfunded supplemental plan as a plan where payments are received by an individual in respect of services rendered to an employer by the individual and the plan would have been an RCA had the employer made a contribution in respect of the payments to a trust governed by the plan.
It is ultimately a question of fact whether a particular supplemental pension plan is an RCA or unfunded supplemental plan or arrangement for purposes of paragraphs 118(8)(e) and 118(8)(f) of the Act, respectively. Provided the arrangement whereby contributions are made, in accordance with the Plan, to an account that is part of the provincial CRF does not result in the creation of a trust, in our view, the Plan would likely not be an RCA. However, based on the description of the Plan above and as provided in your letter, it is our view that the Plan would be an unfunded supplemental plan as defined in paragraph 118(8)(f) of the Act. Accordingly, payments from the Plan would not be pension income or qualified pension income as those terms are defined in subsection 118(7) of the Act and would not qualify as eligible pension income for purposes of section 60.03 of the Act.
We trust the above comments are of assistance.
Mary Pat Baldwin, CA
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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