27 June 2001 External T.I. 2001-0082515 - GROUP RRSP CONTRIBUTIONS

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 contributions mandatory group RRSP contributions and therefore excluded from Part X.1 tax?

Position: This would be a question of fact.

Reasons: The contributions must be qualifying group RRSP premiums to an RRSP under a qualifying arrangement, in accordance with subsections 204.2(1.31) and 204.2(1.32) of the Act. This determination can only be made based on an examination of the relevant facts.

XXXXXXXXXX 							2001-008251
G. Allen
June 27, 2001

Dear XXXXXXXXXX:

Re: Over-contributions to an RRSP

This letter is in reply to your letter dated May 1, 2001, in which you request our views concerning contributions to a registered retirement savings plan ("RRSP").

In the year 2000, an employee transferred from Company "A" to Company "B". "A" and "B" are affiliated companies. The conditions of the transfer of employment were such that the employee benefits would remain unchanged. While employed with "A", the employee was a member of the money purchase pension plan of "A". "B" does not have an employees' pension plan, therefore, contributions in the same amounts as would have been made to the pension plan of "A", have continued to be made to an RRSP in respect of the employee. Your letter indicates that the "group RRSP" that has been established for this purpose does not have written rules and regulations and that the plans are in reality individual plans to which "B" contributes directly.

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.

An individual's RRSP deduction limit for a particular taxation year is calculated in accordance with the definition of "RRSP deduction limit" under subsection 146(1) of the Income Tax Act (the "Act"). In general, for the year 2000, an individuals' RRSP deduction limit will be determined by the formula:

A+B+R-C
where,

A is the individual's unused RRSP deduction room from 1999

B is the lesser of 18% of the individual's 1999 earned income and $13,500,
minus the individual's 1999 pension adjustment

C is the individual's net past service pension adjustment for 2000, and

R is the individual's pension adjustment reversal for 2000.

Undeducted RRSP contributions at the end of 2000 can either be left in an individual's RRSP or they can be withdrawn. In either case, an overcontribution tax may apply to the undeducted contributions. In general, an overcontribution tax of 1% per month will apply where an individual's undeducted RRSP contributions are more than the individual's RRSP deduction limit for the year plus $2,000. The 1% tax is payable on the total of all excess amounts which remain in an individual's RRSP at the end of a month. However, the 1% tax may not apply to all undeducted RRSP contributions where mandatory group RRSP contributions have been made.

Where undeducted contributions are withdrawn, they are included in the individual's income in the year in which they are withdrawn. Although these undeducted contributions are included in income, where certain conditions under subsection 146(8.2) of the Act are satisfied, an individual may be able to deduct an amount equal to the withdrawn contributions.

Information concerning RRSP contributions can be found in the RRSPs and Other Registered Plans for Retirement guide - T4040 (available at your local tax services office or on the internet at www.ccra-adrc.gc.ca/formspubs/menu-e.html).

Subsection 204.2(1.1) of the Act provides for the calculation of an individual's cumulative excess amount. The cumulative excess amount calculation excludes group RRSP contributions made in respect of the individual in a taxation year. In order to be considered a group RRSP contribution, the contribution must be a "qualifying group RRSP premium" paid under a "qualifying arrangement" in accordance with subsections 204.2(1.31) and 204.2(1.32) of the Act. In general, a qualifying arrangement is an arrangement under which amounts to which two or more individuals are entitled for services rendered to a person (either as employees or as self-employed individuals) are remitted to RRSPs on behalf of the individuals by that person or by an agent for that person.

It is a question of fact whether the contributions made, as described in your letter, are qualifying group RRSP premiums to an RRSP under a qualifying arrangement. As the arrangement described in your letter already exists, this determination would have to be made by your local tax services office.

We trust the above comments will be of assistance.

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