Kroff v. R., [1997] 2 CTC 2298

McArthur T.C.J.:

These appeals were heard under the Informal Procedures of this Court concerning 1993 and 1994 taxation years. The issue is whether the Appellant’s Registered Retirement Savings Plan (RRSP) deduction limit should be reduced by Pension Adjustment benefits (PA). The Appellant disagrees with the decision of the Minister of National Revenue’s decision to deduct PA from his RRSP limits.

The relevant facts are not in dispute. The Appellant became an employee of the Federal Government in 1987 and is a member of the Public Service Superannuation Plan (PSSP), a multi-employer defined benefit plan. In 1991, 1992 and 1993 the Respondent reduced the Appellant’s RRSP contribution limit by his PA amount for the preceding years.

¢ The RRSP dollar limit within the meaning of paragraph 146(1)(g.2) of the Income Tax Act R.S.C. 1985, c. 1 (5th Supp.) (the “Act”) was $12,500.00 for the 1993 taxation year and $13,500.00 for 1994 taxation year. The Appellant’s PA for the 1992 taxation year, within the meaning of subsection 8301(6) of the Income Tax Regulations, was $6,455.00, and his PA for the 1993 taxation year was $6,120.00. The Appellant’s “RRSP deduction limit” for the 1993 taxation year within the meaning of paragraph 146(l)(g.l) of the Act was computed as follows:

The Appellant’s “RRSP deduction limit” for the 1994 taxation year within the meaning of paragraph 146(l)(g.l) of the Act was computed as follows:

Position of the Appellant

The Appellant submits that for the purposes of paragraph 8302(2)(a) of the Income Tax Act Regulations, C.R.C. 1978, c. 945 the pension must be vested to be considered a “normalized pension”. Because the Appellant’s pension was not vested then there is no PA. Vesting of benefits under the PSSP can only occur after five years of service. Since he commenced employment with the Public Service in May 1987 he was not entitled to a contingent right for any employer contributions until May 1992 because there was no vesting of employer contributions until that date. His RRSP should not be credited with employer contribution when he was not entitled to a return or cash surrender value of that amount.

Position of the Respondent

In determining the PA amount, vesting is irrelevant. The Income Tax Regulations deem it to have been vested for the purpose of determining the normalized pension in paragraph 8302(3)(c).

Paragraph 8302(3)(c) sets out a series of assumptions to be made when calculating the normalized pension amount. Simplified, it reads as follows: “the normalized pension of an individual ... is the amount ... of lifetime retirement benefits that would be payable ... if ... (c) all benefits to which the individual is entitled under the provision were fully vested”. Therefore, when calculating the normalized pension, regard must be given to the amount of benefits that would be payable if the benefits were vested.

In the alternative, the Respondent stated that the Appellant has a contingent right to a pension under the Public Service Superannuation Act, R.S.C. 1985, c. P-36. That right is contingent upon attaining five years of service. Subsection 8300(7) of the Regulations provides that a contingent right to a pension is included in the pension benefits to which an individual is entitled within the meaning of paragraph 8302(3)(c).

The above positions are very brief summaries of comprehensive written arguments submitted by both parties.

Analysis

The applicable legislation is complex and the following is not intended to be an exhaustive treatment of the subject but an attempt to deal with the issues presented. The Appellant does not dispute the mathematical calculation. He takes issue with the deduction of the PA amount that he did not contribute personally. It had not vested and he had no cash surrender rights

A member of a PSSP (a registered retirement plan) will find his RRSP deduction limit reduced by a PA. The term PA is defined by reference to other terms which can only be defined by reference to yet further terms. Simply put, the PA is the value of the pension benefits accruing in the preceding year under a RPP (registered pension plan). The PA is determined by reference to that individual’s pension credit for that year. How the pension credit is calculated depends on the nature of the individual’s pension plan. The calculation is not in question. The Appellant was part of a multiemployer plan that has a defined benefit provision. For such a plan, the pension credit is a product of the individual’s benefit entitlement. That entitlement in turn depends on the individual’s benefit accrual in respect of the year. The benefit accrual in turn depends in part on the individual’s normalized pension that has accrued during the year. This normalized pension amount is calculated in part by considering or deeming pension benefits to have vested. As a result, the Minister of National Revenue reduces an RRSP deduction limit by a pension amount even where the benefits under his pension plan have not yet vested.

Section 146 of the Act deals with RRSPs. The PA is calculated under Part LXXXIII of the Income Tax Regulations (“Regulations”). Subsection 60(i) provides that an individual may deduct the premiums he pays into an RRSP during a taxation year. This deduction cannot exceed the individual’s RRSP deduction limit for the year pursuant to subsection 146(1).

The term PA, is defined in subsection 8301(1) of the Regulations. For a particular calendar year, an individual’s pension adjustment is the total of the individual’s pension credits under a benefit provision of a registered pension plan. It is not disputed that the subject plan is a multi-employer defined benefit plan. Subsection 8301(6) applies to multi-employer defined benefit plans subject to subsection 8301(7). Under subsection 8301(6), read with subsection 8301(7), an individual’s pension credit for a particular calendar year is the individual’s benefit entitlement with respect to the year minus $1,000.00 or less.

Subsection 8302(1) provides that for a calendar year, an individual’s benefit entitlement in a defined benefit provision is the benefit that accrued under the pension plan in that year. The amount of the “benefit accrual” is determined under paragraphs a) and b) of subsection 8302(2). The calculation is determined even where the pension benefits have not vested in the taxpayer.

A taxpayer’s normalized pension is calculated at the end of a calendar year even when the benefits under the pension plan have not yet vested in the individual. The normalized pension amount then becomes amount (a) of subsection 8302(2).

The Appellant referred the Court to paragraph 8302(3)(c) of the Regulations. It states that the normalized pension of the individual at the end of a calendar year should be calculated as if “all benefits to which the individual is entitled under the (defined benefit) provision were fully vested ”. The Appellant submits that this Regulation requires that the registered pension plan be fully vested in the individual. I find that this Regulation clearly imposes no such condition on the calculation of the PA. It is part of the calculation of the accrued normalized pension. It requires that in this calculation you assume that the pension benefits have vested.

Subsection 8300(7) reads:

For the purposes of subsection 8301(3) and (8), paragraph 8302(3)(c) and subsection 8302(5) and 8304(5), the benefits to which an individual is entitled at any time under a ... pension plan include benefits to which the individual has only a contingent right because the conditions for vesting of the benefits have not yet been satisfied.

This section does not say that unless the taxpayer has a contingent right to pension benefits, the RRSP deduction limit should not be reduced by a pension adjustment. It does not require that a pension benefit be vested before the pension adjustment is calculated. I find that subsections 8301(3), 8301(8), 8302(5) and 8304(5) do not apply to this appeal.

Subsection 8301(16) reads as follows:

Except as otherwise expressly provided in this Part, each pension credit of an individual for a calendar year shall be determined without regard to any transactions, events or circumstances that occur subsequent to the year.

The Appellant submitted that this Regulation prevents the Minister from calculating a PA in respect of his, the Appellant’s, 1990 and 1991 taxation years. He added that by calculating PA in those years, the Minister is assuming that the Appellant was entitled to a pension credit before 1993 yet the benefits under the Plan had not vested in the Appellant until 1993. He stated that until the pension benefits vested in him, no PA could have been calculated pursuant to subsection 8301(16).

I can not accept this reasoning. The calculation of a pension credit (and, consequently, of a PA) does not depend on whether benefits under the pension plan have vested. Subsection 8301(16) has a limited scope. It begins, “Except as otherwise expressly provided in this Part ...”. There are express exceptions to subsection 8301(16) in Part LXXXIIL In particular, in calculating the normalized pension at the end of a calendar year, which ultimately affects the PA, one must act as if the benefits under the defined benefit provision of the retirement plan have vested. Therefore, when the Minister calculated the Appellant’s PA, the Regulations were not violated by assuming that the pension had vested.

For these reasons I conclude that the Appellant is not entitled to deduct an amount in excess of the amounts allowed by the Minister in respect of RRSP deductions for the 1993 and 1994 taxation years.

The appeals are dismissed.

Appeals dismissed.