13 April 2000 External T.I. 2000-0014585 - BUY BACK OF PAST SERVICE

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 and 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 						2000-001458
M. P. Sarazin
Attention: XXXXXXXXXX 

April 13, 2000

Dear Sirs:

Re: Transfer of Retiring Allowance to RRSPs

This is in reply to your letter dated March 14, 2000, wherein you asked us to reconsider our position 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 RPP 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.

Comments

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 employer contributions is, in fact, the employer's contributions made on the employer's behalf by the employee. Our position which was taken in 1986 is based on legal advice we received at that time.

We note that the intent of clause 60(j.1)(ii)(B) of the Act is to provide employees who are not entitled to pension benefits for the pre-1989 years of service with the employer with an additional $1,500 for each of those years. In our view, the provision was enacted to ensure that an employee is not entitled to have the additional $1,500 rolled over to a tax-deferred registered retirement savings plan 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, we continue to be of the view that our interpretation of the application of the provision in the above situation is correct and consistent with the intent of the legislation.

We trust these comments will be of assistance.

Yours truly,

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