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:
Whether a surplus amount used in a RPP to fund improved benefits can be considered to be a contribution to the RPP when applying subsection 8503(15) .
Position:
This may be the case where the employer has an absolute right to the RPP surplus. It is a question of fact whether the employer has an absolute right to the surplus.
Reasons:
An absolute right may result where the doctrine of constructive receipt can be implemented.
April 7, 1997
HEADQUARTERS HEADQUARTERS
Stella M. Black Franklyn S. Gillman
Director 952-9853
Registered Plans Division
Attention: J. Hollinger
9641127
Subsection 8503(15) of the Income Tax Regulations (the "Regulations")
This is in reply to your memorandum of December 10, 1996 wherein you requested our opinion as to whether the funding aspects of an early retirement program (the "Program") which you described in the above mentioned memorandum and which was accompanied by certain extracts of the said Programs, contravened subsection 8503(15) of the Regulations.
Given that we were required to opine without having all the necessary documents to review and with insufficient facts regarding the pension plan (the "Plan"), the Program and the company's normal practice and/or obligations with regards to terminating employees, we are commenting on the application of the subsection with the facts that were provided and caution you that you should determine the correct facts and apply them in conjunction with the comments made below.
Subsection 8503(15) of the Regulations apply where an employer makes a contribution to a registered pension plan for benefits in respect of a period prior to 1990 and it is reasonable to consider that the contribution was paid with the consent of the member/employee in lieu of a payment to which the member/employee would otherwise be entitled.
It is our opinion that subsection 8503(15) of the Regulations applies where there is either prior or concurrent entitlement. Accordingly, the provision will apply if the employee forgoes a right to a bonus, salary or retiring allowance for the pension contribution, and also where the employee is given the option of choosing a form of direct remuneration or a pension contribution and chooses the latter. However in all cases, the benefit to be provided under the registered pension plan must be with respect to a period before 1990 and it must be funded by the employer making a contribution to the registered pension plan.
You informed us that the additional benefits (a bridge payment and a reduction in the early retirement penalty) being provided were being funded using a surplus amount within the Plan. The funding criteria within subsection 8503(15) of the Regulations requires that the employer make a contribution in respect of benefits provided under the Plan. The question to be asked here is, "Can it be said that a contribution has been made by the employer where a surplus amount in the Plan is being used to fund the benefit?" To answer this question the documents of the Plan must be examined in order to determine how surpluses within the Plan are treated. Since we were unable to inform ourselves on how the Plan documents treat surpluses, the following is a technical review on the ability of treating a surplus in a plan as a contribution.
Where the employer has the absolute right to a surplus in a registered pension plan, then a strong argument may be advanced that the surplus is indirectly a contribution made by the employer to fund benefits and therefore the funding requirements needed to apply subsection 8503(15) of the Regulations would be met. An absolute right to the actuarial surplus may result where the doctrine of constructive receipt can be implemented. The Department's view is that constructive receipt will occur in situations where an amount is credited to a persons' debt or account, set aside for the person or is otherwise made available to the person without being subject to any restriction concerning its use.
We are not prepared to advise whether or not a person has constructive receipt of an amount in a particular situation where we do not have a full understanding of the facts. Such a determination is a question of fact that can only be decided, on a case by case basis, once all the documents pertaining to the situation have been reviewed and all the facts are known. However, we can state that if a right to an amount or the quantum of an amount is subject to regulatory or judicial approval, we would not generally expect constructive receipt to occur before such approval is obtained. Furthermore, if an election to receive an amount in one form or another is made before that time, we would expect the comments in paragraph 11 of Interpretation Bulletin IT-502 with respect to employee benefit plans to have equal application.
Where a registered pension plan provides that the surplus in the plan is for the absolute benefit of the members/employees or are to be for the benefit of the employer and the members/employees, it is likely that the surplus from the plan that is used to fund a program within the plan can not be said to be a contribution by the employer and therefore the facts of the particular situation would be outside the criteria of subsection 8503(15) of the Regulations.
Should you determine at a later date that a contribution has been made to the Plan, Rulings at that time, if you so choose, will determine whether the bridge payment and/or the early retirement reduction factor would be viewed as the funding of past service benefits in respect of a period before 1990.
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation
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