18 March 2003 External T.I. 2003-0001975 - PRESCRIBED AMOUNT UN REGULATION 8517

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:

Interpretation of the phrase "at the time of the transfer" in Regulation 8517.

Position:

The words "at the time of the transfer" mean just that. The calculation is completed when the transfer occurs not at some previous time, such as when the commuted value of a pension benefit is first calculated.

Reasons: Interpretation of the legislation.

2003-000197
XXXXXXXXXX Renée Shields
(613) 948-5273
March 18, 2003

Dear XXXXXXXXXX:

Re: Section 8517 of the Income Tax Regulations (the "Regulations")

This is in response to your facsimile of February 7, 2003 inquiring about the interpretation of the phrase "at the time of the transfer" used in factor B of subsection 8517(1) of the Income Tax Regulations (the "Regulations").

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. The following comments are, therefore, of a general nature only 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 transfers from registered pension plans (RPPs) to other registered plans are contained in Interpretation Bulletin IT-528, "Transfers of Funds Between Registered Plans."

Subsection 147.3(4) of the Income Tax Act permits the direct transfer of a single amount from a defined benefit RPP to a money purchase RPP, a registered retirement savings plan ("RRSP") or a registered retirement income fund ("RRIF") where no portion of the amount relates to an actuarial surplus and the amount does not exceed a prescribed amount calculated in accordance with section 8517 of the Regulations.

Section 8517 of the Regulations defines prescribed amount as the product of the amount of the lifetime retirement benefits (LRBs) commuted (i.e. the annual amount by which the individual's LRBs under the RPP are reduced as a result of the lump sum payment) multiplied by the present value factor that corresponds to the age of the individual at the time of the transfer determined by reference to the table in the section.

Provided the terms of a defined benefit RPP include as a permissible benefit the payment of interest where there is a delay in transferring the commuted value of a member's benefit, the prescribed amount rules will apply to the total amount that can be transferred tax-free to a money purchase RPP, RRSP or RRIF. It is our opinion that the phrase "at the time of the transfer" in factor B of subsection 8517(1) of the Regulations should be given its plain meaning. The wording of section 8517 of the Regulations does not contemplate a calculation whereby an amount transferred is subject to a limit determined at some previous point in time. The prescribed amount must be calculated at the time of the transfer.

We trust that these comments will be of assistance.

Yours truly,

Mickey Sarazin, C.A.

for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch

c.c. Mike Godwin
Registered Plans Directorate