17 October 2000 External T.I. 2000-0041245 - UNFUNDED PLAN

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: Will an unfunded supplementary deferred compensation plan affect the additional $1,500 per year of service prior to 1989 of retiring allowance receipts that can be rolled over to an RRSP under paragraph 60(j.1) of the Act?

Position: No.

Reasons: If the "deferred compensation plan" is a "pension plan" as contemplated by clause 60(j.1)(ii)(B), that provision only refers to vested employer contributions to a pension plan or deferred profit sharing plan.

XXXXXXXXXX 2000-004124
M. P. Sarazin
October 17, 2000

Dear Sir\Madam:

Re: Retiring Allowance Eligible for Clause 60(j.1)(ii)(B) of the Income Tax Act

This is in reply to your letter of August 1, 2000, requesting a ruling regarding the amount of your retiring allowance that could be transferred to a registered retirement savings plan ("RRSP") under paragraph 60(j.1) of the Income Tax Act (the "Act").

After a number of years of service, you terminated your employment with your employer in 2000 and your employer agreed to pay you two years of salary in regular weekly instalments. Although you were not a member of any employer-funded pension plan or deferred profit sharing plan, your employer had agreed in 1995 to pay you amounts under an unfunded deferred compensation plan after your retirement. You ask whether the unfunded deferred compensation plan will affect the amount of retiring allowance that may be contributed to an RRSP under paragraph 60(j.1) of the Act.

Comments

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 submitted in accordance with the procedures outlined in 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 with respect to retiring allowances are found in Interpretation Bulletin IT-337R3 titled "Retiring Allowances". Paragraph 2 of IT-337R3 states that a retiring allowance is defined in subsection 248(1) of the Act as an amount received on or after retirement from an office or employment in recognition of the taxpayer's long service. In order to determine whether an award of two years salary commencing after an employee's termination of employment would constitute a retiring allowance for purposes of the Act, we would have to review all the facts relating to such payments.

If the amount is a "retiring allowance", the part eligible for transfer to an RRSP under paragraph 60(j.1) of the Act is described in paragraphs 12 and 13 of IT-337R3. You will note that individuals may transfer an amount equal to $1,500 times the number of years before 1989 in respect of which employer contributions to a pension plan or a deferred profit sharing plan of the employer or a person related to the employer had not vested in the retiree at the time of the payment of the retiring allowance. Where an employer has made a promise to pay amounts after an employee's retirement but does not segregate any assets to back that promise, we would not consider such a promise to give rise to or result in "vested" contributions by the employer to a pension plan or deferred profit sharing plan. However, the determination of whether an arrangement between an employer and employees would constitute a funded or unfunded pension plan is a question of fact.

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

Yours truly,

Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate