30 November 1995 Ruling 9607763 - SURPLUS TRANSFER BETWEEN PLANS

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:

1. Whether a proposed transfer of surplus from a DB provision to a new RPP with a DB provision is subject to the tax free rollover under 147.3(3)
2. whether GAAR applies

Position:

1. yes
2. no

Reasons:

1. It meets the requirements under subsection 147.3(3)
2. no tax benefit results from the proposed transactions

XXXXXXXXXX 960776

Attention: XXXXXXXXXX

XXXXXXXXXX, 1996

Dear Sirs:

Re: XXXXXXXXXX

This is in reply to your letters of XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above noted taxpayer. We also acknowledge the meeting held on XXXXXXXXXX, and our various telephone conversations.

Our understanding of the statements of facts and proposed transactions is as follows:

FACTS

1.XXXXXXXXXX is a private corporation and a taxable Canadian corporation for purposes of the Income Tax Act (Canada) (the "Act"). XXXXXXXXXX carries on the business of XXXXXXXXXX

2. XXXXXXXXXX The Plan is not a "designated plan" within the meaning of subsection 8515(1) of the regulations under the Act (the "Regulations").

3. XXXXXXXXXX

4. XXXXXXXXXX

5.In recognition of the limits imposed under the Act and the Regulations on the amount of pension payable out of a registered pension plan, and to provide additional retirement benefits,

XXXXXXXXXX

6. XXXXXXXXXX

7. XXXXXXXXXX

PROPOSED TRANSACTIONS

8. XXXXXXXXXX As an initial step, XXXXXXXXXX will complete Form T2030 to request a direct transfer of a payment from the RRIF that is more than the "minimum amount" under the RRIF to an RRSP under which he is the annuitant. After such transfer has been effected, XXXXXXXXXX will transfer assets from their RRSPs to the Plan sufficient to reestablish their Plan pension credits as determined by the Plan actuary in accordance with generally accepted actuarial principles and the applicable provisions of the Act and Regulations. No other contributions will be made by the XXXXXXXXXX.

9.XXXXXXXXXX will apply to Revenue Canada for registration of a new pension plan for the benefit of all Active Directors, all Retired Directors, the Terminated Former Member, the Deferred Vested Member and the Pensioners (referred to herein as the "New Directors Plan"). The New Directors Plan will also be registered with the XXXXXXXXXX

10. XXXXXXXXXX

11.Concurrently with, and as part of, the transfer of assets in paragraph 10, surplus from the Plan allocable on a pro rata basis to the transferred XXXXXXXXXX will be transferred to the New Directors Plan. This transfer would be subject to the approval of the Superintendent.

12.Application will be made to the Superintendent for a reversion of surplus from the ongoing New Directors Plan. The Retired Directors will be allowed to elect,

XXXXXXXXXX

13. XXXXXXXXXX It is intended that the Supplemental Plan Trust Fund will constitute a retirement compensation arrangement under subsection 248(1) of the Act. Each Active Director will continue to accrue future benefits from and after the transfer date under the Supplemental Plan in accordance with its terms.

14.After the foregoing transactions have been implemented, at the end of each subsequent year or such other period as may be designated by XXXXXXXXXX, there would be a transfer of assets from the Plan to the New Directors Plan to cover the transfer of all or a portion of each Active Directors Future Service Benefits accrued up to that time under the Plan for such period, together with a transfer of a pro rata allocation of surplus to cover the benefit accrued during such period under the Supplemental Plan. The amount of an Active Director's Future Service Benefits to be transferred will be actuarially determined as the amount required to permit the concurrent transfer of an amount of surplus from the Plan to the New Directors Plan equal to the amount of XXXXXXXXXX increased liability to that Director under the Supplemental Plan for that year. Each transfer would be subject to the approval of the Superintendent.

XXXXXXXXXX

15.Upon an Active Director's retirement or other termination of employment, any remaining Future Service Benefits in the Plan will be transferred to the New Directors Plan, together with the transfer of a pro rata allocation of surplus. Such Director's pension entitlements will then be paid out in accordance with the terms of the New Directors Plan and will be subject to the usual options for the provision of lifetime retirement benefits. Each Active Director will also commence to receive supplemental pension benefits from the Supplemental Plan Trust Fund.

16.The pension entitlements of the Re-employed Directors will be paid out in accordance with the terms of the New Directors Plan and will be subject to the usual options for the provision of lifetime retirement benefits.

17.Monthly pension payments to each Retired Director will be provided by way of an annuity purchased under the New Directors Plan pursuant to the terms and conditions of the New Directors Plan. In addition each Retired Director will receive supplemental pension benefits from the Supplemental Plan Trust Fund, if applicable.

18.Monthly pension payments to each Pensioner will be provided by way of an annuity purchased under the New Directors Plan pursuant to the terms and conditions of the New Directors Plan.

ADDITIONAL INFORMATION

To the best of your knowledge and that of the taxpayers involved, none of the issues involved in the requested rulings is being considered by an office of Revenue Canada in connection with a tax return already filed, and none of such issues is the subject of any notice of objection or is under appeal.

PURPOSE OF THE PROPOSED TRANSACTIONS

The primary purpose of the proposed transactions is to

XXXXXXXXXX

RULINGS GIVEN

Provided that

1)the preceding statements constitute a complete and accurate disclosure of all the relevant facts and proposed transactions and the purpose of the proposed transactions,

and

2)the New Directors Plan will be accepted for registration by the Registered Plans Division of Revenue Canada,

and

3)final approvals are obtained from XXXXXXXXXX,

we confirm the following:

A.Subsection 146(16) of the Act will apply to the transfer of assets by the Re-employed Directors from their RRSPs to the Plan as described in paragraph 8 above, with the result that no amount of the transfer will be included in computing the transferor's income and no deduction may be made in respect of the transfer in computing the income of any taxpayer.

B.Subsection 147.3(3) of the Act will apply to the transfer of assets, including a pro rata allocation of surplus, from the Plan to the New Directors Plan in respect of the Frozen Service Liability of the Directors and the Pensioners, with the result that subsection 147.3(9) will apply to such transfer.

C.The portion of surplus paid to XXXXXXXXXX on the reversion of surplus from the New Directors Plan will be included in XXXXXXXXXX income for the year of receipt as a superannuation or pension benefit pursuant to subparagraph 56(1)(a)(i) of the Act.

D.The trust fund established for the purpose of funding the Directors' accrued benefits under the Supplemental Plan will constitute a retirement compensation arrangement ("RCA") as defined in subsection 248(1) of the Act.

E.Amounts in respect of benefits under the Plan, XXXXXXXXXX, as the case may be, will only be included in the income of a Director or a Pensioner for a taxation year, under subparagraph 56(1)(a)(i) or paragraph 56(1)(x) of the Act when received in the year by the Director or the Pensioner out of or under one of such plans.

F.As a result of the proposed transactions, in and of themselves, subsection 245(2) of the Act will not apply to redetermine the tax consequences confirmed in the rulings given above.

The above rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R2 dated September 28, 1990, and are binding on Revenue Canada, Taxation, provided that the proposed transactions described herein are completed by XXXXXXXXXX. Our rulings are based on the Act in its present form and do not take into consideration any proposed amendments to the Act.

Nothing in this letter should be construed as our confirmation of the tax consequences of any transaction except those consequences expressly confirmed above. In particular, we are not confirming the tax consequences that may arise from the transactions referred to in paragraph 14 above.

Yours truly,

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