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 an amount held in the U.K. pension plan be transferred to an RRSP?
Position: Question of fact.
Reasons: Subparagraph 60(j)(i) will only apply where certain conditions are satisfied.
XXXXXXXXXX 2000-001986
M. P. Sarazin
Attention: XXXXXXXXXX
July 6, 2000
Dear Madam:
Re: U.K. Personal Pensions and Transfers to an RRSP
This is in reply to your letter of April 6, 2000, wherein you requested a ruling that certain amounts held in U.K. personal pensions on behalf of your clients (who have recently immigrated to Canada) could be transferred to your clients' registered retirement savings plan ("RRSP").
Confirmation of the tax consequences associated with completed transactions are provided by the relevant tax services office. Opinions concerning proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. For more information concerning advance tax rulings, please refer to Information Circular 70-6R3 dated December 30, 1996, issued by the Canada Customs and Revenue Agency (the "Agency"). Copies of information circulars and interpretation bulletins are available from your local tax services office or on the Internet at the following site - http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. However, we can provide you with the following general comments.
The Agency's general views regarding the transfer of amounts from non-registered pension plans to an RRSP are found in Interpretation Bulletin IT-528 "Transfers of Funds Between Registered Plans". Paragraph 26 discusses the application of subparagraph 60(j)(i) of the Income Tax Act (the "Act") which allows a deduction for the transfer of a superannuation or pension benefit (that is not part of a series of periodic payments) from a non-registered pension plan for services provided by an individual in a period throughout which that individual was not resident in Canada. To be eligible for a deduction under subparagraph 60(j)(i) for the transfer of the superannuation or pension benefit to an individual's RRSP, the individual has to include such a benefit in income for the year under subparagraph 56(1)(a)(i) of the Act and the transfer has to be made for the year the amount is included in the individual's income or within 60 days after the end of the year.
We could not determine whether your clients' rights to the amounts represent rights to amounts under a non-registered pension plan. We note that amounts received out of a foreign plan will only fall within the provisions of paragraph 56(1)(a) of the Act if the foreign plan is a superannuation or pension plan. In our opinion, this will only occur where contributions have been made to the foreign plan by or on behalf of an employer or former employer of an employee in consideration for services rendered by the employee or, in some cases, where amounts have been contributed by a government. To explain, the courts have generally found that a plan will not be a superannuation or pension plan where only the beneficiary of the plan has made contributions. The courts have in particular, frequently cited the 4th definition of pension as set out in the Shorter Oxford English Dictionary as support for their decisions. This definition provides that a pension is:
"4. An annuity or other periodical payment made, esp. by a government, a company, or an employer of labour, in consideration of past services."
Because of these decisions we have accepted the general position that amounts received out of a foreign plan where only employee contributions have been made, are not superannuation or pension benefits. They are, therefore, not included in income in accordance with subparagraph 56(1)(a)(i) of the Act and cannot be transferred to an RRSP under the provisions of paragraph 60(j) of the Act.
We would also like to draw to your attention the fact that in addition to the provisions noted above, various other provisions of the Act may apply to tax the earnings in the plan to a Canadian-resident beneficiary of a UK plan. It appears that the personal pensions are now held through an insurance company and that on maturity the holdings will be eligible for a lump sum withdrawal or an annuity. As a general comment, we would suggest that your clients should review their circumstances and determine what their current reporting obligations may be. If further assistance is required, the Agency would be pleased to discuss any particular situations on a case-by-case basis.
In particular, if the UK plan is a trust, it will likely be subject to the provisions of section 94 of the Act whether it is a pension plan or a retirement savings plan. Furthermore, if the plan is not a trust, but is held in the form of an annuity or deposit, the various rules pertaining to the annual reporting of income from property may apply.
With respect to application of the Article 17 of the Canada U.K. Income Tax Convention, either the U.K. or Canada or both may have the right to tax amounts paid to a Canadian resident. Paragraph 3 of the article provides that a payment made out of pension and retirement plans will be treated as pension for the purpose of paragraph 1 of the provision (and therefore may be taxed in the country of residence) but not including a payment in settlement of all future entitlements under the plan. Paragraph 4 provides that only fixed periodic payments under annuity contracts will be treated as annuities for purposes of paragraph 2 of the article (and therefore may be taxed in either country) . Paragraph 4 also provides that the term "annuity" does not include a pension or any payment made under a superannuation, pension or retirement plan in settlement of all future rights under such a plan.
We trust these comments will be of assistance to you.
Yours truly,
Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate
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