12 February 2002 External T.I. 2001-0107845 - ASSIGNMENT OF RIGHTS RPP DPSP

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. Do the assignment exceptions in subparagraph 8502(f)(i) of the Regulations apply to paragraph 147(2)(e) of the Act?

2. Would 147(2)(e) apply to a member's named beneficiary?

3. Will 8502(f) or 147(2)(e) be offended where the RPP or DPSP administrator is served with garnishment orders under section 224 of the Act?

Position:

1. No.

2. No.

3. No.

Reasons:

1. There is no basis under the Act to include the exceptions.

2. Paragraph 147(2)(e) only refers to an employee beneficiary under the DPSP.

3. Garnishment orders only apply to a right to a payment so it would not offend the provisions.

XXXXXXXXXX 2001-010784
M. P. Sarazin, CA
February 12, 2002

Dear XXXXXXXXXX:

Re: Garnishment Against Certain Plans

This is in reply to your letter of October 26, 2001, requesting our views regarding the application of paragraph 147(2)(e) of the Income Tax Act (the "Act") to deferred profit sharing plans ("DPSPs") and subparagraph 8502(f)(i) of the Income Tax Regulations (the "Regulations") to registered pension plans ("RPPs") in the context of the following general questions. In particular, you are interested in the differences between the application of the two provisions to the relevant plans.

Question 1

Under subparagraph 8502(f)(i) of the Regulations, certain assignments as described in clauses 8502(f)(i)(A) and (B) are not considered assignments for the purposes of applying paragraph 8502(f) of the Regulations. Do the exceptions in these RPP provisions of the Regulations apply to the application of paragraph 147(2)(e) of the Act to DPSPs?

Response

Since paragraph 147(2)(e) of the Act does not include a referral to the exceptions described in clauses 8502(f)(i)(A) and (B) of the Regulations, these exceptions will not apply to paragraph 147(2)(e) of the Act.

Question 2

Paragraph 147(2)(e) of the Act applies to a right or interest of an employee who is a beneficiary under a DPSP. Will paragraph 147(2)(e) also apply to a spouse or other person named as the employee's beneficiary under the DPSP?

Response

The determination of whether a person named as a DPSP participant's beneficiary would have any rights under the DPSP prior to the participant's death is a question of fact. We would have to review all of the relevant facts, including the terms of the particular DPSP. In any case, since paragraph 147(2)(e) of the Act only refers to an employee beneficiary of a DPSP, the restriction would probably not apply to the employee participant's beneficiary's right to a payment created as a result of the death of the employee participant.

As noted in paragraph 17(k) of Information Circular 77-1R4, the terms of a DPSP require that the deceased employee participant's vested amounts be paid out to the named beneficiary not later than 90 days after the death of the employee. Where amounts are not paid to the appropriate person, the provisions of subsection 56(2) or 56(4) may apply to the assignment of rights.

Question 3

Paragraph 8502(f) of the Regulations applies to any right of a person under a RPP. Will the prohibition in paragraph 8502(f) of the Regulations apply to a spouse or other person named as the employee's beneficiary under the RPP?

Response

The determination of whether a person named as a RPP member's named beneficiary would have any rights under the RPP prior to the participant's death is a question of fact. For purposes of RPPs, subsection 8500(1) of the Regulations defines a beneficiary to mean a person who has a right, by virtue of the participation of an individual in a RPP, to receive benefits under the RPP after the death of the individual. Consequently, subsequent to the death of the RPP member, the rights of the RPP member's beneficiary would be subjected to the restrictions contained in paragraph 8502(f) of the Regulations.

Question 4

Where the RPP or DPSP administrator is served with a garnishment order pursuant to section 224 of the Act, will the garnishment order result in the provisions of paragraph 8502(f) of the Regulations or paragraph 147(2)(e) of the Act being offended?

Response

Section 224 of the Act empowers the Minister of National Revenue to collect unpaid taxes and other amounts owing under the Act by a person by serving garnishment letters on any person liable to make a payment to that person. In order to apply subsection 224(1), the employee participant in the RPP or DPSP would have to have requested a payment under the terms of the particular plan. Since the garnishment order applies to a person's right to a payment, the garnishment order would not result in the provisions of paragraph 8502(f) of the Regulations or paragraph 147(2)(e) of the Act being offended. This position would be consistent with the decision rendered by the Federal Court of Appeal in Her Majesty the Queen v. The Maritime Life Assurance Company (2000 DTC 6402).

Question 5

Paragraph 147(2)(e) of the Act refers to a "right or interest" and subparagraph 8502(f)(i) of the Regulations only refers to a "right". What is the scope of the expression "right" used in both provisions and the meaning of the expression "interest" used in paragraph 147(2)(e) of the Act?

Response

The different wordings may only reflect the writing style at the time the provision of the provision was enacted. We are not aware of any intent to broaden the application of paragraph 147(2)(e) of the Act.

Question 6

In its July 31, 1991 Technical Notes, the Department of Finance indicated that the requirements in subparagraph 8502(f)(i) of the Regulations would not be violated where a creditor of the plan member takes recourse against plan distributions to enforce the debt. Will the enforcement of support and maintenance orders violate the requirements of subparagraph 8502(f)(i) of the Regulations.

Response

Under clause 8502(f)(i)(A) of the Regulations, an assignment does not include an assignment pursuant to a decree, order or judgment of a competent tribunal or a written agreement in settlement of rights arising out of a marriage or common-law partnership on or after the breakdown of the marriage or common-law partnership. Consequently, it was intended that an assignment from the settlement of rights resulting from a marriage or common-law partnership breakdown would not violate the requirements of subparagraph 8502(f)(i) of the Regulations. Where a court orders an additional division of property because of the non-payment of support and maintenance as required under a decree, order or judgment of a competent tribunal or under a written agreement in settlement of rights arising from a marriage or common-law partnership breakdown, we are of the view that the additional division would constitute a settlement of rights referred to in clause 8502(f)(i)(A) of the Regulations.

We trust our comments will be of assistance to you. These comments are provided in accordance with the practice outlined in paragraph 22 of Information Circular 70-6R4 entitled Advanced Income Tax Rulings, dated January 29, 2001.

Yours truly,

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