9 December 2003 External T.I. 2002-0163535 - PAYMENTS FROM RPP, DPSP OR SUBP

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:

Requested confirmation of reporting and withholding requirements of various payments from RPPs, SUBPs and DPSPs.

Position: Comments provided as applicable.

Reasons: See commentary in the memorandum.

XXXXXXXXXX 							2002-016353
P. Kohnen
December 9, 2003

Dear XXXXXXXXXX:

Re: Technical Interpretation - Trustee of various Registered Plans

This is in response to your submission of September 18, 2002 wherein you requested our opinion regarding the requirements imposed by the Income Tax Act (the "Act") to report and/or withhold taxes for various payments from registered plans for which your company acts as trustee.

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 income tax ruling request. For more information concerning advance tax rulings, please refer to Information Circular 70-6R5 dated May 17, 2002. Copies of information circulars, guides and pamphlets are available at your local Tax Services Office or on the Internet at http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following general comments, which may be of assistance.

Pursuant to paragraphs 153(1)(b), (e) and (h) of the Act, any person who pays a superannuation or pension benefit, an amount as a benefit under a supplementary unemployment benefit plan ("SUBP"), or a payment under a deferred profit sharing plan ("DPSP") in the year shall deduct or withhold from the payment an amount determined in accordance with the prescribed rules and remit that amount to the Receiver General at the prescribed time. The prescribed amount and the prescribed time are set out in Part I of the Income Tax Regulations.

1. Registered Pension Plans ("RPPs")

Subsection 248(1) of the Act defines a "superannuation or pension benefit" to include:

any amount received out of or under a superannuation or pension fund or plan and, without restricting the generality of the foregoing, includes any payment made to a beneficiary under the fund or plan or to an employer or former employer of the beneficiary thereunder

(a) in accordance with the terms of the fund or plan,
(b) resulting from an amendment to or modification of the fund or plan, or
(c) resulting from the termination of the fund or plan.

Paragraph 4 of Interpretation Bulletin IT-499R, "Superannuation or Pension Benefits", states that, "...any amount received out of a superannuation or pension fund is income whether it is in the nature of a single payment or otherwise. This is so even if contributions to a particular fund or plan were not deductible for tax purposes." Thus, regardless of whether a payment from an RPP to a participating employer represents a return of an overpayment by the employer made due to clerical or administrative error, a return of an excess employer contribution to avoid the revocation of the plan registration, a refund of plan administration expenses paid by the employer, or a payment of plan surplus, the amount will constitute a superannuation or pension benefit.

Pursuant to paragraph 153(1)(b) of the Act, every person who pays a superannuation or pension benefit in the year must withhold an amount in accordance with prescribed rules in the Income Tax Regulations (the "Regulations") and remit that amount to the Receiver General on account of the payee's tax for the year. In accordance with Regulation 200(1), the person who makes the payment must report the amount on an information return in prescribed form. The T4A Supplementary would be the prescribed form for such a payment. Note that a return of an overpayment by the employer made due to clerical or administrative error, a return of an excess employer contribution to avoid the revocation of the plan registration, or a refund of plan administration expenses paid by the employer, would be reported as Other Income on the T4A Supplementary. A payment of plan surplus to the employer, however, would be reported as a Lump Sum Payment.

It should be noted that, for purposes of Part I of the Regulations, an "employer" is broadly defined, pursuant to Regulation 100(1), as any person paying remuneration, and an "employee" is defined as any person receiving remuneration. The same regulation also defines "remuneration" to include, inter alia, any payment that is a superannuation or pension benefit, a benefit under a SUBP, or a payment under a DPSP.

Regulation 103(6) defines a lump sum payment, for the purpose of the withholding requirements pursuant to Regulation 103(4). In regard to superannuation or pension benefit payments ("remuneration"), only those provided for in subparagraph 40(1)(a)(i) of the Income Tax Application Rules ("ITAR") are considered lump sum payments.

Accordingly, any over-contributions refunded to a plan sponsor (an "employee"), or any refund of plan administration expenses paid by a plan sponsor, would not be a lump sum payment, and thus would be considered to be periodic payments, in accordance with Regulation 102. As such, if such payments are made to a recipient that has not been in receipt of regular payments from the payor (the "employer"), then the withholding requirements under Regulation 106(1) will apply.

The payment of a single amount of surplus from the plan would be a lump sum payment, pursuant to clause 40(1)(a)(i)(B) of the ITAR and Regulation 103(6)(a), if the payment is made on the winding-up of the plan in full satisfaction of all rights of the payee in or under the plan. Such a payment would be subject to withholding at the rates provided for in Regulation 103(4).

We have been advised by the Trust Accounts Division that there are no administrative exceptions that would apply to the above-referenced scenarios.

2. SUBPs

A refund of assets to the sponsoring employer of a SUBP, at plan termination, would constitute the payment of an amount as a benefit under a supplementary unemployment benefit plan, as described in paragraph 153(1)(e) of the Act. Accordingly, the payor would be required to withhold tax on such a payment, and report it on an information return in prescribed form.

The prescribed form for reporting such a SUBP payment would be the T4A Supplementary, and the amount would be reported as Other Income. As was noted above, a lump sum payment is defined, for the purpose of withholding requirements, by Regulation 103(6). The definition does not include a payment from a SUBP, thus the payment would be considered to be a periodic payment, in accordance with Regulation 102.

Here again, the Trust Accounts Division has advised us that there are no administrative exceptions that would apply to such a payment.

3. DPSPs

Where a DPSP refunds a forfeited amount to an employer, such a payment would constitute a payment as described by paragraph 153(1)(h) of the Act, thus Regulation 200(1) would require that it be reported by the payor.

Pursuant to Regulation 103(6)(b), any payment from a DPSP, other than as referred to in subparagraph 147(2)(k)(v) of the Act, will be a lump sum payment, for the purpose of the withholding requirements of Regulation 103(4). Accordingly, such a payment will be subject to withholding at the lump sum rates.

The payment would be reported as a Lump Sum Payment on the T4A Supplementary.

We trust that the above comments will be of assistance to you.

Yours truly,

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