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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Is the supplemental retirement arrangement (unfunded pension plan) an SDA or an RCA?
Position: No.
Reasons: It is an unfunded arrangement to provide pension benefits that are supplementary to the benefits provided under an RPP.
XXXXXXXXXX 2001-009549
XXXXXXXXXX, 2001
Dear XXXXXXXXXX:
Re: XXXXXXXXXX
Proposed Supplemental Pension Plan
This is in reply to your letters of XXXXXXXXXX, in respect of your request for an advance income tax ruling on behalf of the above-noted plan.
Definitions and Abbreviations
In this letter, the following terms have the meanings specified:
(a) "Act" means: the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as amended to the date hereof;
(b) "Adjustment Factor" means: for any quarter, the rate of return earned for that quarter on the XXXXXXXXXX rate of return XXXXXXXXXX (investment returns will be assumed to be constant throughout each quarter), net of applicable expenses;
(c) "Board" means: the Board of XXXXXXXXXX;
(d) "CCRA" means: the Canada Customs and Revenue Agency;
(e) "Employer" means: XXXXXXXXXX;
(f) "Member" means: a XXXXXXXXXX or administrative employee of the Employer who is a member of the RPP and the Plan;
(g) "Plan" means: the proposed supplemental pension plan as described in this ruling;
(h) "Regulations" means: The Income Tax Regulations;
(i) "RPP" means: the Pension Plan for XXXXXXXXXX; and
(j) "Spouse" means: the individual who qualifies as the Member's spouse under the RPP.
Facts
1. The Employer has established and is maintaining the RPP for its employees. The RPP is a money purchase pension plan.
2. An employee's annual contributions to the RPP are set out in the RPP and are XXXXXXXXXX% of the employee's "pensionable earnings" as that term is defined in the RPP.
3. The Employer's annual contributions to the RPP in respect of any employee are set out in the RPP and are XXXXXXXXXX% of the employee's "pensionable earnings".
4. The Act and the Regulations, as applicable to registered pension plans, limits the amount of employer and employee contributions that can be made to a registered pension plan. In consequence, the RPP provides that, notwithstanding the contribution provisions described in 2 and 3 above, the employees' and Employer's contributions to the RPP are restricted in accordance with the limitations set out in the Act and the Regulations.
Proposed Plan
5. The Employer proposes to establish the Plan for the benefit of all employees in the RPP that are affected by the limits on contributions to the RPP.
6. Subject to the receipt of an advance income tax ruling, the Plan will be established with effect from XXXXXXXXXX (the "Effective Date").
7. Subject to 8 below, each employee who contributes to the RPP at any time after the Effective Date, will become a Member as of the first day of the first month in the first calendar year in which the aggregate of the contributions to the RPP by the Member (including anticipated employee required contributions not yet made for that year) and the actual Employer contributions to the RPP on behalf of the Member in that year, first reaches the "Money Purchase Limit", as that term is defined in the Plan.
8. Notwithstanding any other provision of the Plan, no employee will become a Member or will be entitled to benefits under the Plan, if the employee is entitled to receive supplemental retirement benefits from any other plan of the Employer on account of the same period of employment with the Employer.
9. In each calendar year, the Employer will establish a credit under this Plan (the "Supplemental Credit") for a Member for whom the condition specified in 7 above applies.
10. The amount of the Supplemental Credit for a year will be the amount by which the aggregate of required employee and Employer contributions to the RPP for that year, if there were no Money Purchase Limit, exceeds the Money Purchase Limit for that year. However, in any case where a Member's contributions to the RPP for a year are equal to or greater than the Money Purchase Limit, no Supplemental Credit will be established that represents that portion of the Member's contributions otherwise required under the RPP that are in excess of the Money Purchase limit.
XXXXXXXXXX.
11. "Supplemental Accounts" will be established for Members. All Supplemental Credits will be credited quarterly on a pro-rated basis (on the number of days) to the respective Supplemental Accounts of the Members.
12. The Supplemental Accounts will be adjusted quarterly by reference to the Adjustment Factor. The Adjustment Factor will normally consist of credits to the Supplemental Accounts but if the investment benchmark suffers a loss, the Supplemental Accounts will be reduced by their proportional share of the loss.
13. The Supplemental Account of each Member will be maintained until all payments to which the Member is entitled under the Plan have been made.
14. The Employer will assume no obligation to pre-fund any benefits under the Plan. However, the Employer may set aside and invest sums of money equal to the contributions credited to the Supplemental Accounts. The Employer will be the sole legal and beneficial owner of any assets set aside and such assets will remain the sole property of the Employer.
15. Any assets held for the purposes of the Plan may be commingled with other assets of the Employer. No asset will be set aside or earmarked in the name of a Member and no Member will have any direct claim against any asset held for the purposes of the Plan. The assets will not be held in trust for the benefit of the Members.
16. Any assets set aside for the Plan will be available to the general creditors of the Employer, as required.
17. No benefit ("Entitlement") will be payable under this Plan before the earliest of a Member's date of retirement or termination of employment (including early retirement) from the Employer, or date of death.
18. A Member may designate a beneficiary (the "Designated Beneficiary") to whom, in the event of the death of the Member, Entitlements under the Plan will be paid.
19. Subject to 21 and 22 below, the Employer will pay a Member's Entitlement to the Member in annual instalments over a period of XXXXXXXXXX years.
20. The amount of each annual instalment of a Member's Entitlement will be the amount obtained by dividing the balance in the Member's Supplemental Account immediately before the payment by the number obtained when the number of annual instalment payments that have previously been made to the Member is subtracted from the number of annual instalments to be made.
XXXXXXXXXX.
21. Members terminating employment before attaining age XXXXXXXXXX will be required to take a lump sum payment equal to the value of the Supplemental Account.
22. On termination of employment (including retirement) at or after age XXXXXXXXXX , a Member, or if the Member dies before termination of employment and has designated his or her Spouse as the Designated Beneficiary under the Plan, the Member's surviving Spouse, may elect to receive the Member's Entitlement in annual installments over a period of XXXXXXXXXX years or fewer, or in a lump sum. If the Designated Beneficiary is not the Member's Spouse, then the Employer will make a lump sum payment equal to the balance in the Member's Supplemental Account to the Designated Beneficiary.
23. An election described under paragraph 22 above, must be made by a Member before the effective date of retirement or termination of employment, as the case may be, or in the case of death of a Member, by the Member's surviving Spouse if he or she is the Member's Designated Beneficiary, before any payments of the Member's Entitlement may be made.
24. Members terminating employment (other than by reason of death) before the passage of two unbroken years of employment with the Employer will not be entitled to any benefit from the Plan.
25. A Member's Designated Beneficiary will receive the remaining value of the Supplemental Account in a lump sum (or through continuing annual payments if the Designated Beneficiary is the Member's Spouse) if a Member dies after retirement or termination but before receiving the full value of the Member's Supplemental Account.
26. If a Member does not designate a beneficiary under the Plan or if the Designated Beneficiary has predeceased the Member, on the death of the Member, the Employer will pay the Member's Entitlement to the Member's estate in a lump sum.
27. The Employer will administer the Plan. The Employer may appoint such agents and employees as it deems necessary to assist in managing and administering the Plan and may make arrangements and agreements with such financial institutions or agencies as it deems advantageous or necessary to hold assets set aside for the purposes of the Plan on behalf of the Employer, to prepare annual statements for each Member, setting out the amounts added to and deducted from the Member's Supplemental Account, to inform each Member of the status of the Member's participation in the Plan, to administer the payment of Members' Entitlements and to do such other things that the Employer in its discretion determines is desirable or advantageous to be done by such an institution or agency.
28. For the purposes of the definition of the Adjustment Factor, costs incurred in the management and administration of the Plan including investment management fees, administration and other costs incurred by the Employer in respect of the Plan, will be expenses incurred in connection with the Plan.
29. The Employer may, at any time, supplement, modify, amend or terminate this Plan, provided that no such supplementation, modification, amendment or termination shall affect the Entitlement of any Member accrued under the Plan prior to the effective date of such supplementation, modification, amendment or termination. Notwithstanding the foregoing, any supplementation, modification or amendment of the Plan shall be such that the Plan will continuously meet the requirements of the provisions of the Act on which the rulings in A. through E. below are provided.
Purpose of the Proposed Plan
30. The Employer wishes to establish the Plan in order to provide higher income employees with a supplemental pension where the contributions that would otherwise be made to the RPP are restricted by the limitations set out in the Act and the Regulations.
31. To the best of your knowledge, none of the issues involved in this ruling are:
i) in an earlier return of the Employer, a Member, or any person related to the Employer or a Member;
ii) being considered by a tax services office or tax centre in connection with a previously filed tax return of the Employer, a Member, or any person related to the Employer or a Member;
iii) under objection by the Employer, a Member, or any person related to the Employer or a Member;
iv) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; nor
v) the subject of a ruling previously issued by the Directorate to the Employer.
Rulings
Provided the preceding statements constitute a complete disclosure of all relevant facts, the proposed Plan and the purpose of the proposed Plan, and provided the Plan is established as proposed, we rule as follows:
A. The Plan will not constitute a salary deferral arrangement, as that term is defined in subsection 248(1) of the Act.
B. The Plan will not constitute a retirement compensation arrangement, as that term is defined in subsection 248(1) of the Act.
C. No amount will be included in the income of a Member under subsection 5(1) of the Act, paragraph 6(1)(a) or subparagraph 56(1)(a)(i) of the Act as a result of, in and by itself, the Member's participation in the Plan.
D. Each payment made under the Plan by the Employer to a Member, a Designated Beneficiary or the estate of the Member, as the case may be, will be required to be included in the income of the recipient in the year it is received as a superannuation or pension benefit pursuant to subparagraph 56(1)(a)(i) of the Act.
E. Subsection 12(4) of the Act will not apply to a Member in the Plan to require any amount to be included in computing the Member's income for a year as interest in respect of any entitlements the Member may have under the Plan.
The above rulings, which are based on the Act in its present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R4 dated January 29, 2001, and are binding on the CCRA provided that the Plan is implemented by XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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