8 February 2000 External T.I. 1999-0014685 - ELIGIBLE RERITING ALLOWANCE

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: Would we reconsider our long-standing position regarding the application of clause 60(j.1)(ii)(B) to the buy-back of past service where the employee pays both the employee/employer portions of the cost?

Position: No.

Reasons: The position reflects our interpretation of the application of the provision based on the intent of the legislation.

XXXXXXXXXX 1999-001468
M. P. Sarazin
Attention: XXXXXXXXXX

February 8, 2000

Dear Sirs:

Re: Transfer of Retiring Allowances to RRSPs

This is in response to your letter dated December 15, 1999, wherein you asked us to reconsider the position expressed in our November 16, 1999 letter to you (file #992657) (the "Letter") regarding the application of clause 60(j.1)(ii)(B) of the Income Tax Act (the "Act") where employees are required to pay for both the employee and employer costs with respect to the buy-back of past service under a registered pension plan ("RPP").

The Canada Customs and Revenue Agency's position is that the additional $1,500 per year of retiring allowance transfer deduction is not available for years which have been purchased under a registered pension plan even though the employee may have paid the entire cost. You are of the view that this interpretation is contrary to the clear language in clause 60(j.1)(ii)(B) of the Act and the fact that the position is expressed in Interpretation Bulletin IT-337R3 does not make the position correct at law.

We will provide our comments in respect of each of the arguments that you have presented.

Argument #1

Our interpretation is contrary to the clear language of the law since the provision refers to employer contributions that had vested at the time the retiring allowance is paid.

Comments

Clearly, the terms of RPPs and deferred profit sharing plans require contributions by an employer to fund the benefits that are to be provided under the particular plan. When the contributions have vested and the employee retires, the plan is obligated to make the payments required under the terms of the particular plan. The buy-back of past service only applies to RPPs and the terms of the particular RPP will dictate who has to pay for the cost of the past service benefits to be provided under the RPP. Since the cost represents both employer and employee contributions required to fund such benefits, we have taken the position that the portion of the contributions paid by the employee on behalf of the employer to fund the employer contributions is, in fact, the employer's contributions made on the employer's behalf by the employee. As noted in our Letter, our position which was taken in 1986 is based on legal advice we received at that time. We continue to be of the view that our interpretation of the application of the provision in the above situation is correct.

Argument #2 and Argument #3

Since no notes or background information were released when the wording was added to paragraph 60(j.1) of the Act, it is difficult to tell what the Department of Finance's intent was when the legislation was passed. You believe that the intent was to restrict the additional rollover only to situations where employer- funded benefits were made available to the employee.

Comments

The 1995 Budget Supplementary Information issued by the Department of Finance regarding the phase-out of retiring allowance rollovers states:

"Individuals may continue to transfer up to $2,000 per year of service before 1996, plus $1,500 for each year before 1989 in which they earned no pension or DPSP benefits"

The 1981 Budget Supplementary Information issued by the Department of Finance states:

"The amount of retiring allowance an employee will now be able to contribute tax-free to his RRSP will be limited to $3,500 for each year the employee was with the employer and was not covered by the employer's pension plan. This limit recognizes that had the employee been a pension plan member in those years his employer could have contributed $3,500 to the plan on his behalf."

Based on the above comments provided by the Department of Finance, it is clear that only employees who are not provided with pension benefits for the pre-1989 years of service with the employer are entitled to claim the deduction for the additional $1,500 rollover provided under clause 60(j.1)(ii)(B) of the Act. The provision was enacted to ensure that an employee was not entitled to have the additional $1,500 rolled over to a tax-deferred RRSP when funds are already held in a tax-deferred RPP to provide benefits to the employee for that year of service with the employer. Consequently, our position appears to be consistent with the intent of the legislation.

Argument #3

IT-337R3 released January 30, 1998 included paragraph 13(d) which provided the Agency's interpretation in respect of the above situation whereas IT-337R2 released May 22, 1984 did not include this interpretation. Since there was no legislative change to clause 60(j.1)(ii)(B), you question whether the Agency had any basis for its interpretation since it was not recorded in IT-337R2.

Comments

As you know, interpretation bulletins do not have the force of law but they can be relied upon as reflecting the Agency's interpretation of the law to be applied on a consistent basis by Agency staff. There are several reasons why the Agency may revise an existing interpretation bulletin. They include changes to reflect both amendments to the law and court decisions affecting previous positions, changes in previous positions and the addition of any other interpretations that may be of general interest to the reader of the bulletin. Consequently, it does not follow that an interpretation which is added to a revision is without basis when there has not been a corresponding amendment to the relevant provisions of the Act.

We trust the above comments will be of assistance to you.

Yours truly,

Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy & Legislation Branch