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: Are payments made under the U.S. Railroad Retirement Act for Tier 1 and Tier 2 benefits considered social security taxes?
Position: Since 1965, our position has been that Tier 1 and Tier 2 payments under the U.S. Railroad Retirement Act are considered social security taxes.
Reasons: Even though Tier 2 benefits are considered pension benefits for purposes of the Act, we have allowed the contributions in respect of the Tier 2 benefits to be treated as either pension contributions or foreign taxes.
May 17, 2000
BY FAX: 613-957-9306
HEADQUARTERS HEADQUARTERS
Elaine Collins M.P. Sarazin
Director 824-5441
Special Processing Division
Individual Returns and Payments Processing Directorate
Attention: Michele Tetrault 2000-002014
IT-122R2 and U.S. Railroad Retirement Act
We are writing to you in response to your E-Mail of April 7, 2000, wherein you requested clarification regarding the comments provided in paragraph 5 of Interpretation Bulletin IT-122R2.
Paragraph 1 of IT-122R2 discusses Tier 1 and Tier 2 benefits under the U.S. Railroad Administration Act (the "RRAA"). We consider Tier 1 benefits under the RRAA to be social security benefits and Tier 2 benefits under the RRAA to be superannuation and pension benefits for purposes of the Income Tax Act (the "Act"). Even though paragraph 5 of IT-122R2 does not discuss Tier 1 or Tier 2 benefits under the RRAA, it is your understanding that only contributions that relate to Tier 1 benefits under the RRAA are eligible to be considered as foreign taxes. Contributions that relate to Tier 2 benefits under the RRAA are considered pension contributions for purposes of the Act. Our field offices are allowing the contributions in respect of the Tier 2 benefits under the RRAA to qualify as foreign taxes or as pension contributions because of the wording used in paragraph 5 of IT-122R2. You have asked us to confirm that your understanding is correct and to advise you as to when paragraph 5 of IT-122R2 will be amended to state that only contributions related to Tier 1 benefits under the RRAA are eligible to be considered as payments of a foreign tax.
The Canada Customs and Revenue Agency (the "Agency") reviewed the various benefits that are provided under the RRAA and how such benefits should be taxed under the Act. It is our understanding that the Tier 1 RRAA benefits are divided into two portions. One portion that is equivalent to the normal U.S. social security coverage and another portion that is not considered to be a U.S. social security benefit but is considered to be a benefit from a pension plan. The Tier 2 RRAA benefits are also considered to be benefits from a pension plan.
Notwithstanding this type of income categorization, the Agency took the view that contributions required under the RRAA (whether for Tier 1 or Tier 2 RRAA benefits) may be dealt with, at the employee's option, either as a contribution to a registered pension plan or as a payment of foreign tax. Based on a review of the back-up to IT-122R2, the position dates back to 1965. This position was last confirmed by our Directorate in a technical interpretation issued April 12, 1988 and we see no reason to change this position at this time.
We have been advised that the registration of the RRAA as a registered pension plan under the Act was revoked January 1, 1997. Consequently, contributions required under the RRAA can no longer be treated as contributions to a registered pension plan for purposes of the Act. It appears that such contributions will now be treated as non-deductible contributions to an employee benefit plan. We will therefore ensure that paragraph 5 of IT-122R2 is amended to reflect the fact that the contributions can no longer be deducted as registered pension contributions.
We trust these comments will be helpful.
Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate
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