27 June 2001 External T.I. 2001-0081105 - TRANSFERS UNDER 147.3(4)

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: Application of Regulation 8517 prescribed amount formula to an RPP transfer under subsection 147.3(4).

Position: The excess amount, above the Regulation 8517 prescribed amount, cannot be tax deferred and is therefore subject to withholding tax.

Reasons: Required by the applicable sections of the Income Tax Act.

XXXXXXXXXX 								2001-008110
G. Allen
June 27, 2001

Dear XXXXXXXXXX:

Re: Transfers under Subsection 147.3(4) of the Income Tax Act

This is in reply to your letter of April 22, 2001 in which you request our opinion concerning transfers under subsection 147.3(4) of the Income Tax Act (the "Act").

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advanced income tax ruling request. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following general comments, which may be of assistance.

Subsection 147.3(4) of the Act permits the direct transfer of a single amount from a defined benefit registered pension plan ("RPP") to a money purchase RPP, a registered retirement savings plan ("RRSP") or a registered retirement income fund ("RRIF").

Interpretation Bulletin IT-528, entitled "Transfers of Funds Between Registered Plans", (available at your local tax services office or on the internet at www.ccra-adrc.gc.ca/formspubs/menu-e.html) provides the Agency's views concerning transfers. As noted in paragraph 15 of IT-528, a single amount may be transferred under subsection 147.3(4) of the Act where no portion of the amount relates to an actuarial surplus and the amount does not exceed a prescribed amount calculated in accordance with section 8517 of the Income Tax Regulations (the "Regulations").

Page 242 of the Department of Finance's Proposed Regulations and Explanatory Notes issued July 31, 1991, entitled "Saving for Retirement", states that the restriction under Regulation 8517 on the amount that may be transferred under subsection 147.3(4) of the Act prevents the use of such transfers as a means of obtaining larger tax-assisted retirement benefits than intended. In particular, the limit restricts the extent to which early retirement benefits can be converted into additional lifetime retirement benefits commencing at a later age, i.e., beyond age 65.

The excess amount above the Regulation 8517 prescribed amount must be included in the recipient's income by virtue of paragraph 56(1)(a) of the Act and is subject to withholding tax in the year the amount is paid. The applicable withholding rate for lump-sum payments greater than $15,000 is 30%. As the 30% withholding rate may not equate to your marginal tax rate, you may have to pay additional tax on the excess amount when you file your tax return.

With regard to the last two questions in your letter, please be advised that we are not in a position to provide tax planning advice and therefore cannot comment on the most economical options available to you.

We trust the above comments will be of assistance.

Yours truly,

Roberta Albert, CA
For Director
Financial Industries Division
Income Tax Rulings Directorate