2002 Ruling 2002-0143503 - SUPPLEMENTARY PENSION PLAN AMENDMENT

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:

Will amendments to a supplementary pension plan cause the plan to be a salary deferral arrangement?

Position: No.

Reasons: The amendment does not affect the previous rulings given.

XXXXXXXXXX                                2002-014350

XXXXXXXXXX, 2002

Dear XXXXXXXXXX:

Re: Supplemental Advance Income Tax Ruling

Executive Retirement Plan for Employees of XXXXXXXXXX.

This is in reply to your letter dated XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above-referenced taxpayer. We also acknowledge receipt of XXXXXXXXXX letter dated XXXXXXXXXX, which amended information contained in your XXXXXXXXXX letter.

Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the "Act") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.

Our understanding of the facts, proposed amendment and purpose of the proposed amendment is as follows:

Facts

1. XXXXXXXXXX (the "Employer") is a taxable Canadian corporation within the meaning assigned by subsection 89(1) of the Act. The Employer is a wholly owned subsidiary of XXXXXXXXXX (the "Parent").

2. The Employer deals with the XXXXXXXXXX Tax Services Office and files its income tax returns with the XXXXXXXXXX Taxation Centre.

3. The executives of the Employer are members of the Employer Salaried Employees' Pension Plan, a pension plan registered in accordance with the Act. The Employer sponsors a group registered retirement savings plan (the "Group RRSP"). The Employer has also established the Executive Retirement Plan for Employees of the Employer (the "Plan"), which was the subject matter of ruling #973210 (the "Ruling"). Under the terms of the Plan, the Employer will designate those executives who will be entitled to participate in the Plan (the "Participants").

Proposed Amendment to the Plan

4. The Employer proposes to amend the Plan, as described in the Ruling, by changing the Plan Participants' contributions to their registered retirement savings plans, and by changing the Employer's credits to the notional account under the Plan, as described hereafter.

5. The Employer proposes to change such contribution amounts and notional credits such that (b) and (c) of 5 under "Proposed Transaction" in the Ruling will be deleted and replaced as follows:

(b) The Participant will be required to contribute an amount to his or her RRSP (the "RRSP Contribution") equal to the lesser of:

(i) XXXXXXXXXX% of the Participant's annual compensation; and

(ii) the Participant's RRSP deduction limit for the year. The expression "RRSP deduction limit" has the meaning assigned by subsection 146(1) of the Act.

The Participant will be entitled to make the RRSP Contribution to his or her account within the Group RRSP or to his or her own personal RRSP.

(c) The Employer will credit the Participant's notional account with an amount computed by the formula a + (b - c) where:

a = XXXXXXXXXX % of the Participant's compensation for the year
b = XXXXXXXXXX % of the Participant's compensation for the year
c = the amount determined in paragraph (b) above.

Purpose of the Proposed Amendment to the Plan

6. The essence of the proposed amendment to the Plan is that the Participants are being required to contribute to the Group RRSP or to their own RRSPs up to the limit of $13,500, rather than $XXXXXXXXXX as previously required under the Plan. In order to arrive at the same amount of credit to the notional account under the Plan, the percentages in paragraph (c) above had to be modified. For example, for a Participant whose annual compensation is $XXXXXXXXXX, the credit to the notional account under the current version of the Plan is $XXXXXXXXX, whereas under the proposed Plan the credit to the notional account under the Plan would be $XXXXXXXXXX.

7. The rationale underlying the proposed changes is to align the design of the Employer's savings programs with those of its Parent. The proposed changes continue to integrate with the limits in the Act on tax-assisted retirement savings, such that the total amount of annual retirement benefits for a Participant, payable on retirement, including the amounts credited under the Plan, do not exceed 2% of a Participant's final three year average compensation multiplied by the Participant's years of pensionable service and indexed in accordance with increases in the Consumer Price Index (Canada). This result was confirmed in tests conducted on the total benefits provided through the Employer's retirement savings programs.

Additional Information

We understand that, to the best of your knowledge and that of the Employer, none of the issues involved in the ruling request is:

(i) in an earlier return of the Employer or a related person,

(ii) being considered by a tax services office or tax centre in connection with a previously filed tax return of the Employer or a related person,

(iii) under objection by the Employer or a related person,

(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, except insofar as this ruling request is supplemental to the Ruling referred to above.

Rulings

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed amendment to the Plan and purpose of the proposed amendment to the Plan and provided the proposed amendment to the Plan is implemented as described above, we rule as follows:

A. Provided the Plan was implemented prior to the deadline set out in the Ruling, the rulings issued in the Ruling will continue to be binding on the Agency in accordance with the practice outlined in Information Circular 70-6R5, dated May 17, 2002.

The above ruling, which is based on the Act in its present form and does not take into account any proposed amendments thereto, is given subject to the general limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002, and is binding on the Canada Customs and Revenue Agency provided that the proposed amendment to the Plan is implemented by XXXXXXXXXX.

Yours truly,

XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate