21 February 2000 Internal T.I. 1999-0007637 - PENSION TAX CREDIT

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: Can the pension tax credit be claimed in respect of income from an un-matured RRSP?

Position: No.

Reasons: It is not (and is not theoretically equivalent to) "pension income" as defined in 118(7).

			February 21, 2000

	SHAWINIGAN-SUD TAX CENTRE	HEADQUARTERS
			Income Tax Rulings
	Attention:  Luc Martin	  Directorate
G. Kauppinen
(613) 957-8971

			1999-000763

XXXXXXXXXX - Subsections 118(3) and (7) - XXXXXXXXXX

This is in reply to your facsimile dated September 30, 1999 regarding a letter dated August 16, 1999 which you received from the above-noted taxpayer.

Briefly, the taxpayer drew amounts out of an unmatured registered retirement savings plan ("RRSP") in 1998 and was disallowed the pension credit in respect of the RRSP income.

Where the taxpayer has not attained the age of 65 before the end of the taxation year (and no amounts from certain sources were received by the taxpayer as a consequence of the death of his or her spouse) subsections 118(3) and (7) of the Act allow a pension tax credit only in respect of a taxpayer's income from a life annuity under a superannuation or pension plan ("eligible pension income"). This amount is reported on line 115 of the 1998 T1 Income Tax Return (the "T1"). No amounts on a T4RSP slip are reported on line 115.

If the taxpayer has reached the age of 65 before the end of the taxation year the income eligible for the pension tax credit will also include, inter alia, income from an annuity payment under a matured registered retirement savings plan ("RRSP") (subparagraphs (a)(ii) of the definition of "pension income" in subsection 118(7)). Such annuity payments are shown in box 16 of the T4RSP slip. As stated in the "Tax Tip" under line 129 of the 1998 General Income Tax and Benefit Guide (the "Guide"), "Annuity payments shown in box 16 of your T4RSP slip may qualify for the pension income amount. See line 314 for more details."

Line 314 clearly refers to annuity payments (from a matured RRSP) which have been reported on line 129 of the T1; and the 2nd line of the chart under line 314 of the 1998 T1 clearly states that such an amount is only included in the calculation of the pension income amount if the taxpayer was 65 or older on December 31, 1998 or received the payments because of the death of his or her spouse.

It is our opinion that the current scheme of the Act in respect of the pension tax credit contemplates a normal retirement age of 65 years. Historically, most RPPs used to provide for retirement with full benefits only at age 65. A pension from an RPP before age 65 was only available in unusual circumstances such as the permanent disability of the member of the RPP.

Amounts can be withdrawn from an unmatured RRSP and taken into income by a taxpayer at any time (i.e. such amounts are "discretionary income" to the taxpayer/annuitant). However, a pension from an RPP will only be paid out to a member of the RPP after the retirement of the taxpayer pursuant to the terms of the RPP and the taxpayer generally cannot opt not to receive the pension income (i.e. the income is non-discretionary to the taxpayer). Similarly, annuity payments under a matured RRSP must be included in the taxpayer's income.

It is our opinion that one intention of the legislators in respect of income eligible for the pension tax credit was to make the rule as equally applicable as possible to taxpayers who were members of an RPP and those taxpayers who were providing for their pension income by way of contributions to an RRSP during their working years.

Any decision regarding amendments to the law is the responsibility of the Department of Finance. Therefore, any comments or suggestions a taxpayer may have regarding the current law should be directed to that department.

We trust the foregoing is of assistance. If there are further questions, please contact Gord Kauppinen at (613) 957-8971.

P. Spice
Manager
Deferred Income Plans Section
Financial Industries Division
Income Tax Rulings Directorate