10 January 2002 External T.I. 2001-0106265 - UNFUNDED SUP PEN 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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

1. Can a foreign unfunded supplemental pension plan be a superannuation or pension plan for purposes of the Act?

2. If it is determined that an unfunded supplemental pension plan is a superannuation or pension plan for purposes of the Act, can the amount be transferred under paragraph 60(j) of the Act?

Position:

1. Question of fact.

2. Yes.

Reasons:

1. We would have to determine whether the amount would be a pension plan payment or a retiring allowance for purpose of the Act. There is no limit on pension plan transfers whereas there is for retiring allowance transfers.

2. There is nothing in the Act that would prevent the transfer.

XXXXXXXXXX 2001-010626
M. P. Sarazin, CA
January 10, 2002

Dear XXXXXXXXXX:

Re: Paragraph 60(j) and Unfunded Supplemental Retirement Arrangements

This is in reply to your facsimile of October 17, 2001, requesting our views as to whether paragraph 60(j) of the Income Tax Act (the "Act") would apply to an amount received from an unfunded supplementary pension plan.

Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R4, dated January 29, 2001. If the concerns relate to transactions that have already been completed, we would suggest that the investor submit the enquiry to his or her local tax services office, along with all relevant documentation, for review. However, if you have a client that is contemplating a transfer of a lump-sum unfunded supplemental pension plan payment to a registered pension plan ("RPP") or a registered retirement savings plan ("RRSP") then you should request an advance income tax ruling. Consequently, we can only provide the following general comments.

Subparagraph 60(j)(i) of the Act allows a deduction in computing income for Canadian income tax purposes for a lump-sum transfer to a RPP or a RRSP in respect of a transfer of a foreign superannuation or pension benefit (i.e., the transfer cannot be part of a series of periodic transfers). The pension benefit from the foreign (i.e., non-registered) pension plan must be in respect of services rendered by an individual while that individual was not a resident of Canada. We note that the deduction under subparagraph 60(j)(i) of the Act is not allowed if a deduction for the same pension benefit transfer can be taken under subparagraph 110(1)(f)(i) of the Act because of a specific provision in a bilateral income tax convention (treaty) between Canada and the foreign country from which the foreign pension originates. In addition, to be eligible for a deduction under paragraph 60(j) of the Act for a transfer of an individual's foreign superannuation or pension benefit to that individual's RPP or RRSP, the individual has to include such a benefit in income for the year under subparagraph 56(1)(a)(i) of the Act and the transfer has to be made in the year the amount is included in the individual's income or within 60 days after the end of the year that the amount is included in the individual's income.

As you had noted, an unfunded supplemental pension plan is generally an unsecured promise to pay a pension by an employer. The determination of whether a foreign unfunded supplemental pension plan would constitute a superannuation or pension plan for purposes of the Act is a question of fact. We would have to review the terms of the particular plan or arrangement to make this determination. In our view, if there is no legal obligation for the employer to make the pension payments, particularly while the employee is employed, then the amounts paid may constitute a retiring allowance for purposes of the Act. The Canada Customs and Revenue Agency's general views regarding retiring allowances are found in Interpretation Bulletin IT-337R3, entitled Retiring Allowances. Paragraph 7 of IT-337R3 states that payments paid under the terms of an employment contract may also be viewed as employment income.

We trust these comments will be of assistance.

Yours truly,

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