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:
A Canadian, resident originally in the U.K., has accrued pension benefits in the U.K. under his or her former U.K. employer's pension plan. Is it possible to transfer his U.K. pension benefits to his new Canadian employer's pension plan?
Position: Yes.
Reasons: Paragraph 60(j).
XXXXXXXXXX 2002-015338
G. Kauppinen
February 26, 2002
Dear XXXXXXXXXX:
Re: Transfers from foreign pension plan to registered pension plan ("RPP")
This is in reply to your letter of July 17, 2002 requesting our opinion as to the transfer of a new employee's entitlements under a foreign pension plan to your company's RPP.
Opinions concerning proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. For more information concerning advance income tax rulings, please refer to Information Circular 70-6R5 dated May 17, 2002, issued by the Canada Custom's and Revenue Agency ("CCRA"). Copies of information circulars and interpretation bulletins are available from your local tax services office or on the Internet at the following site - http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. However, we can provide you with the following general comments.
Where certain conditions are satisfied, an amount may be transferred to an RPP from a foreign pension plan under the provisions of paragraph 60(j) of the Income Tax Act (the "Act"). Paragraph 60(j) of the Act provides for a deduction in the calculation of an individual's income of an amount that is transferred to an RPP where the amount has been received from a foreign pension plan and has been included in the recipient's income for Canadian income tax purposes. It does not provide any rules on whether an RPP may accept such a transfer. CCRA's general views regarding the transfer of amounts from non-registered pension plans to RPPs are found in Interpretation Bulletin IT-528 "Transfers of Funds Between Registered Plans". Paragraph 26 of the bulletin discusses the application of paragraph 60(j) of the Act and indicates that a deduction is available for the transfer of a superannuation or pension benefit from a non-registered pension plan where:
? the amount transferred was for services provided by an individual in a period throughout which that individual was not resident in Canada;
? the individual is required to include the amount in the person's income for the year under subparagraph 56(1)(a)(i) of the Act;
? the amount is not part of a series of periodic payments; and
? the transfer is made in the year the amount is included in the individual's income or within 60 days after the end of the year.
Paragraph 60(j) of the Act also provides for the transfer of amounts to an RRSP under which the individual is the annuitant where the same conditions are met.
In your submission you indicated that your inquiry concerns a transfer of funds from a specific U.K. pension plan of another company resident in the U.K. It is a question of fact whether an amount received out of or under this arrangement will be a superannuation or pension benefit for the purposes of subparagraph 56(1)(a)(i) and paragraph 60(j) of the Act. This will require a review of the terms of the U.K. pension plan and the facts surrounding the particular individual's involvement in the U.K. pension plan.
Please note that the CCRA cannot comment on the application of U.K. tax law in respect of this matter and cannot advise whether any taxes will be payable to the U.K. upon transfer of the amount out of the U.K. pension plan. However, it should be noted that under paragraph 1 of Article XVII of the Canada-U.K. Income Tax Convention ( the "Convention"), a pension arising in the U.K. (i.e. out of the existing plan) that is paid to a resident of Canada will only be taxable in Canada and there will be no withholding tax in the U.K. on the pension payments. Under paragraph 3 of Article XVII of the Convention, the term 'pension' includes any payment under a superannuation, pension or retirement plan but does not include any payment under a superannuation, pension or retirement plan in settlement of all future entitlements under such a plan. That is, a lump-sum payment in satisfaction of all the individual's entitlements under the U.K. pension plan will be subject to withholding tax in the U.K. To determine whether there is any economic and/or tax advantages to the individual to transfer his or her U.K. pension entitlements to a Canadian RPP, the individual should consult with his or her tax advisors.
Please note that the term "locked-in" is not a term that is relevant to the Act. It is a term that is governed by provincial pension legislation. The funds would be considered "locked in" to the extent any normal contributions would be locked-in by the terms of the particular pension plan (i.e., no distributions until a certain age). In addition, the relevant pension legislation in the U.K. may have restrictions that are relevant to this transfer. Consequently, both the U.K. pension legislation regarding transfers to foreign (Canadian) pension plans as well as the relevant provincial legislation should be examined in this regard.
There may be a maximum limit to the amount that can be transferred on a tax-deferred basis. Under subparagraph 8502(b)(v) of the Income Tax Regulations the amount transferred has to be acceptable to the Minister. Our Registered Plans Directorate (16th Floor, Tower B, Place de Ville, 112 Kent Street, Ottawa ON K1A 0L5 - Telephone:. (613-954-0419))) should be contacted in this regard. Also, there could be restrictions imposed by the relevant provincial pension legislation and/or the U.K. pension legislation. These statutes should be also be considered prior to any transfer.
We trust our comments will be of assistance to you.
Yours truly,
Mickey Sarazin, C.A.
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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