15 March 2004 External T.I. 2003-0023931E5 - Transfer of a pension to an RRSP

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.

Principal Issues: The writer asked for certain certifications in respect of a group RRSP, that are required by a foreign pension authority in order for it to allow a transfer of pension benefits to the plan.

Position: Indicated that the certifications requested could not be provided.

Reasons: CRA applies the Oxford dictionary definition of a pension for domestic purposes as a consequence of a number of court decisions. A pension is an arrangement under which employer (or government) contributions are made in respect of employment. (See 2003-001345) RRSPs do not specifically prevent employer contributions but the tax imposed under Part X.1 of the Act, if they accept such contributions, is such that they are virtually never made. (Employer contributions would be treated as gifts in the calculation of undeducted RRSP premiums - see E9400765). Furthermore, the Income Tax Conventions Interpretation Act provides a deeming provision that provides that, for purposes of our tax treaties, a payment received out of an RRSP is a payment out of a pension. We therefore could not, as a point of fact, certify that an RRSP is a pension plan given the courts position and the absence of such a provision.

XXXXXXXXXX 2003-002393
W. C. Harding
March 15, 2004

Dear XXXXXXXXXX:

Re: Transfer of Pensions to Registered retirement Savings Plans (RRSPs)

This is in reply to your letter of June 12, 2003, concerning the transfer of funds from a pension plan in the Netherlands to a Canadian RRSP.

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 and are not binding on the Canada Revenue Agency ("CRA"). All publications referred to herein can be accessed on the CRA website at the following address http://www.ccra-adrc.gc.ca/tax/technical/incometax/menu-e.htm l.

In reviewing the information submitted, we note that the Netherlands' XXXXXXXXXX may permit the transfer of an amount from a pension in the Netherlands where the beneficiary has changed job or workplace within the same company group and the transfer is made to a pension fund of that group. The Netherlands' tax authorities also permit transfers to "pensions".

An RRSP may be treated by Canada as a pension plan for purposes of the Canada-Netherlands Income Tax Convention, by virtue of the Canadian Income Tax Conventions Interpretation Act. However, under Canadian domestic tax law an RRSP is not generally considered to be a "pension plan". To clarify, the determination of whether a particular plan would constitute a superannuation or pension fund for purposes of the Act is a question of fact. However, the Canadian courts have generally found that a plan will not be a superannuation or pension plan where only the beneficiary of the plan has made contributions. The courts have in particular, frequently cited the 4th definition of pension as set out in the Shorter Oxford English Dictionary as support for their decisions. This definition provides that a pension is:

"4. An annuity or other periodical payment made, esp. by a government, a company, or an employer of labour, in consideration of past services."

Accordingly, a plan will, in general, be considered to be a superannuation or pension fund where contributions have been made to the plan by or on behalf of an employer or former employer of an employee in consideration for services rendered by the employee and the contributions are used to provide an annuity or other periodical payment on or after the employee's retirement in consideration for his or her employment services, and in some cases, where amounts have been contributed under the plan by a government.

RRSPs do not specifically prevent employer contributions but the tax imposed, if they do accept such contributions, is so significant that they are virtually never made. We therefore could not, in general, provide a certification that an RRSP is a pension that satisfies the requirements of the XXXXXXXXXX or the Netherlands' tax authorities. Please note that while you indicate in your letter that your current Canadian employer does make contributions to your group registered retirement savings plan, the plan to which you wish to transfer the amount, under Canadian domestic law, this is not likely the case. In most instances, the "employer contributions" are included in an employee's income from employment and treated as employee contributions to the RRSP. This will generally be indicated on a T4 Information Return provided to the employees each year.

While we may not provide the certification requested, we would like to note that the Canadian Income Tax Act (the "Act") does provide for the transfer of amounts from foreign pension plans to RRSPs. In simplified terms, the amount that may be transferred must be a taxable, lump sum pension benefit paid out of a foreign pension, where the amount is attributable to services performed while the employee was not a resident of Canada. The amount must be included in the income of the recipient in the year it is received in accordance with the provisions of subparagraph 56(1)(a)(i) of the Act. Then, if it is contributed to an RRSP, a deduction is allowed for the amount of the contribution, in accordance with the provisions of paragraph 60(j) of the Act. Because the amount is first included in income, if there is any foreign, non-business tax withheld, a foreign tax credit determined in accordance with subparagraph 126(1)(b)(i) of the Act, will also generally be available for Canadian tax purposes. We would also note that transfers of pension amounts to an RRSP in this manner will not affect an individual's annual RRSP contribution limit. However, it is possible that an employee may wish to use the annual contribution room to deduct amounts transferred to an RRSP that may not be deducted under paragraph 60(j) of the Act.

Should the Dutch authorities be prepared to allow a transfer to your RRSP, we offer the following additional information.

? Group RRSPs are often used by employers as a substitute for Canadian registered pension plans since they are generally simpler to administer.

? RRSPs are "money purchase" or "defined contribution" arrangements. That is, contributions to an RRSP are accumulated on a tax-free basis and the total accumulated in the plan is used, on maturity, to pay a retirement income in the form of an annuity to the RRSP annuitant. A plan must mature before the end of the year in which the annuitant turns 69. The Act also permits the accumulated funds to be used to acquire an annuity or to be transferred to a registered retirement income fund (RRIF), which is an arrangement that provides more flexibility to the payment schedule then is generally available under an annuity.

? As noted above, employers cannot generally make contributions to an employee's RRSP because significant tax would be applied. In the alternative, when a group RRSP is established, the "employer contributions" are considered to be paid to the employee as additional remuneration. The employee is then allowed to claim the contribution (within limits) as a deduction on filing an income tax return.

? In general, an RRSP may be terminated at any time by an annuitant and the amount received out of the RRSP included in the annuitant's income. However, many RRSPs provide that the funds held are "locked-in" and may only be used to acquire a retirement income (an annuity) on maturity. These types of arrangements are normally required under Canadian pension laws where amounts are transferred from Canadian pension plans to RRSPs. The details of the locked-in provisions are not administered or reviewed by CRA.

? RRSPs are generally funded through a deposit account, an insurance contract or a trust. Group RRSPs can, in general, only be funded through a segregated-fund insurance contract.

If the XXXXXXXXXX or the Netherlands tax authorities wish confirmation that your RRSP is a locked in plan you may obtain this by writing to CRA Registered Plans Directorate, Ottawa ON K1A 0L5 or by fax at 613-952-0199.

We trust that these comments will be of assistance to you.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch