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:
What are the tax implications of an employee participating in the pension plan of a federal crown corporation while on leave without pay with the Federal government and the employee continues to contribute to the government's pension plan?
Position:
Pension Plan of the federal crown corporation may become revocable.
Reasons:
Employers controlled by Her Majesty in Right of Canada are related. When an employee participates in an RPP of a Federal Crown Corporation in addition to an RPP of a Federal Government Department, the total pension adjustment in respect of both employers must be compared to the money purchase limit. Where the total pension adjustment of both employers exceeds the money purchase amount, the RPP of the Crown Corporation may become a revocable plan pursuant to subsection 147.1(8) of the Act.
XXXXXXXXXX 2002-012881
Karen Power, CA
(613) 957-8953
May 24, 2002
Dear XXXXXXXXXX:
Re: LWOP and Participation in RPPs for Two Employers
We are writing in reply to your facsimile of March 14, 2002, requesting our comments regarding the tax consequences that would result from an employee participating in your registered pension plan ("RPP") while he or she is on pensionable leave without pay ("LWOP") with the Federal Government.
The employee is employed with the Federal Government and is on LWOP for a year. During this LWOP period, the employee is contributing to the Federal Government's RPP, a multi-employer plan ("MEP"). While currently employed with your Federal Crown Corporation, the employee is entitled to participate in your RPP which is not a MEP. You are concerned that subsection 147.1(8) of the Income Tax Act (the "Act") could result in your RPP becoming a revocable plan.
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 advance ruling request submitted in the manner set out in Information Circular 70-6R4 entitled Advanced Income Tax Rulings, dated January 29, 2001. Where the particular transactions are completed, the enquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the CCRA.
An RPP (other than a multi-employer plan) becomes a revocable plan where the pension adjustment limits contained in subsection 147.1(8) of the Act are not respected. Paragraph 147.1(8)(b) of the Act provides that an RPP becomes a revocable plan where the pension adjustment of a member in respect of a participating employer plus the member's pension adjustment in respect of all other employers who do not deal at arm's length with the employer exceeds the money purchase limit for the year. Consequently, the total of the employee's pension adjustments for the Federal Government's RPP and the Federal Crown Corporation's RPP can not exceed the money purchase limit for the particular year. Where an RPP becomes a revocable plan because the money purchase limit is exceeded and paragraph 147.1(8)(b) applies, subsections 147.1(11) to (13) permit the Minister of National Revenue to revoke the registration of the plan.
It is our general position that if employers are controlled by Her Majesty in Right of Canada, then the employers are related. Paragraph 251(1)(a) of the Act provides that related persons are deemed not to deal at arm's length. Consequently, where an employee participates in an RPP of a Federal Crown Corporation that is not a MEP as well as an RPP of a Federal Government Department that is a MEP, the total pension adjustment in respect of both employers must be compared to the money purchase limit for the particular year. Where the total of the pension adjustments for both employers exceeds the money purchase limit for the year, the RPP of the Federal Crown Corporation will become a revocable plan pursuant to subsection 147.1(8) of the Act.
We note that any questions dealing with the registration or possible revocation of an RPP should be directed to the Registered Plans Division. You may contact the Registered Plans Division by telephone at 613-954-0419 or by facsimile at 613-952-0199.
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.
Yours truly,
Mickey Sarazin, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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