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: Are past service RPP contributions for pre-1990 service deductible by the taxpayer?
Position: Yes, within the parameters of subsection 147.2(4).
Reasons: General information provided.
XXXXXXXXXX
Renée Shields
(613) 948-5273
March 14, 2003
Dear XXXXXXXXXX:
Re: Deductibility of Past Service Pension Contributions
This is in response to your letter of January 21, 2003 inquiring whether contributions you made in 2001 to a registered pension plan ("RPP") for benefits for pre-1990 service are deductible.
Based on the information provided, it would appear that you retired in XXXXXXXXXX and, at that time, you elected to purchase pre-1990 past service. Consequently, you are receiving a pension and certain amounts are being withheld from your pension to pay for your election to purchase pre-1990 past service. Based on the information provided by the Superannuation Directorate of the Public Works and Government Services Canada, you are paying $XXXXXXXXXX per month for the period XXXXXXXXXX until XXXXXXXXXX to purchase a period of pre-1990 service while not a contributor to a pension plan for a lump sum cost of $XXXXXXXXXX and you are paying $XXXXXXXXXX per month for the period XXXXXXXXXX until XXXXXXXXXX to purchase a period of pre-1990 service while a contributor for a lump sum cost of $XXXXXXXXXX. Since you are paying substantially more than the lump sum cost in each case, a portion of each of your payments represents an interest component. Based on a review of your 2001 personal income tax return by the Sudbury Tax Services Office, your claim for your past service pension contributions have been disallowed on the basis that there was insufficient information provided to determine the amount that could be claimed under the Income Tax Act (the "Act").
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. Since your situation is under review by the Sudbury Tax Services Office, we can only provide you with the following comments that are of a general nature and are not binding on the Canada Customs and Revenue Agency ("CCRA"). All publications referred to herein can be accessed on the CCRA website at the following address: http://www.ccra-adrc.gc.ca/tax/technical/incometax/menu-e.html.
The CCRA's general views regarding employee contributions to RPPs are contained in Interpretation Bulletin IT-167R6, "Registered Pension Plans - Employee's Contributions".
When RPP contributions for past service are deducted from an individual's pension income, the former employer issues the individual a T4A slip with the contribution amount shown in Box 32. As indicated in the explanatory notes on the back of the T4A, the portion of this amount that can be deducted should be entered on Line 207 of the individual's T1 General Return. The explanatory notes refer to a helpful guide entitled "RRSPs and Other Registered Plans for Retirement" which can assist in determining how much of the past service contribution is deductible. The guide includes a step-by-step worksheet for this purpose.
We should note that if the election to purchase pre-1990 past service was made after November 12, 1981, which appears to be the case in your situation, annual instalment interest is included as a past service contribution. If the election was made prior to November 13, 1981, instalment interest can either be deducted in Line 232 of the T1 Return or included as part of the past service contribution.
When considering the deductibility of past service RPP contributions for pre-1990 service, it is necessary to determine whether or not the individual was contributing to an RPP during the service in question.
Employee Contributions for pre-1990 Past Service while not a Contributor
Paragraph 147.2(4)(b) of the Act is applicable if a past service contribution for pre-1990 service relates to a period of service during which an individual was not a contributor to an RPP. It limits the deduction in any given year to $3,500, and limits the cumulative amount that can be deducted to $3,500 times the number of years of such service. Generally speaking, paragraph 147.2(4)(b) of the Act provides that the amount that is deductible is equal to the least of the following amounts:
? the amount of the pre-1990 past service contribution paid in the year or in a previous year, less any amounts previously deducted;
? $3500; and
? $3500 multiplied by the number of pre-1990 years to which the contributions relate, minus any amounts previously deducted for these contributions.
It would appear that, based on the limited information available, $XXXXXXXXXX (12 x $XXXXXXXXXX) may be deductible under paragraph 147.2(4)(b) of the Act in your situation.
Employee Contributions for pre-1990 Past Service while a Contributor
Paragraph 147.2(4)(c) of the Act is applicable if a past service contribution for pre-1990 service relates to a period of service during which an individual was a contributor to an RPP. It limits the deduction in any given year to $3,500 minus other RPP contributions deducted in the year, but imposes no cumulative limit on the amount that can be deducted. Generally, paragraph 147.2(4)(c) of the Act provides that the amount that is deductible is equal to the least of the following amounts:
? The amount of the pre-1990 past service contributions paid in the year or in a previous year, less any amounts previously deducted and
? $3500 minus the total of amounts deducted in the year for:
o current service RPP contributions
o post-1989 past service contributions and
o pre-1990 past service contributions for periods while not a contributor.
It would appear that, based on the limited information available, $XXXXXXXXXX ($3,500.00 - $XXXXXXXXXX) may be deductible under 147.2(4)(c) of the Act in your situation.
It is apparent that you had not provided the appropriate information to the Sudbury Tax Services Office when your 2001 return was being reviewed. Consequently, we will forward a copy of the letter you received from the Superannuation Directorate of the Public Works and Government Services Canada to the Sudbury Tax Services Office for its consideration in respect of your file. This additional information will give them the opportunity to review your file and to determine the appropriate amount of past service pension contributions that you are entitled to deduct for 2001.
Both paragraph 147.2(4)(b) of the Act and paragraph 147.2(4)(c) of the Act allow contributions that are not deducted in one year to be carried forward and deducted in a subsequent year, subject to the relevant limits.
You have also asked for an explanation of why the total amount of past service contributions paid in the year would not be deductible. Although matters of tax policy are the responsibility of the Department of Finance, we can provide the following general commentary. Before pension reform in the early 1990's, the limits affecting the RPP and registered retirement savings plan system were largely governed by the deductibility rules as contained in the Act at that time. The current rules for deductibility of pre-1990 past service contributions are intended to ensure that individuals who today purchase benefits related to pre-1990 service and individuals who actually acquired the benefits in the pre-reform era receive consistent tax treatment.
We trust that these general comments will be of assistance.
Yours truly,
Mickey Sarazin, C.A.
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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