28 October 2003 Internal T.I. 2003-0025797 - PENSION CORPORATIONS

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:

Does the wording of subparagraph 149(1)(o.2)(i) of the Act restrict the activities of a corporation that was incorporated before Nov. 17, 1978 solely in connection with, or for the administration of, a registered pension plan?

Position: No.

Reasons:

Based on the actual wording of subparagraph 149(1)(o.2)(i) and the purpose of the amendments to paragraphs 149(1)(o) and 149(1)(o.2) as reflected in David Sherman's Department of Finance Technical Notes.

									October 28, 2003

Vancouver TSO						Headquarters
John Quan							G. Allen
Team Leader, Section 443-23					(613) 952-9853
Small and Medium Business Audit

								2003-002579

Interpretation of Subparagraph 149(1)(o.2)(i) of the Income Tax Act (the "Act")

This is in reply to your e-mail dated June 27, 2003, wherein you requested our interpretation of subparagraph 149(1)(o.2)(i) of the Act. In your e-mail you provided the following facts.

Facts

1) The company was incorporated in XXXXXXXXXX and is owned by a registered pension plan.

2) The business of the company includes the XXXXXXXXXX.

3) The ownership structure of the company is not an issue.

Based on the above facts and the wording of subparagraph 149(1)(o.2)(i) of the Act, you question whether the corporation's business activities would result in the corporation losing its tax-exempt status under subparagraph 149(1)(o.2)(i) of the Act.

Our Comments

In order to be exempt from Part I tax under paragraph 149(1)(o.2) of the Act, a corporation must first satisfy the requirements of either subparagraph 149(1)(o.2)(i), (ii), (ii.1) or (iii) and at all times since the later of November 16, 1978 and the date on which it was incorporated, satisfy one of the tests described in either subparagraph 149(1)(o.2)(iv) or (v). We would refer you to technical interpretations 9810305 and 9804835.

Subparagraph 149(1)(o.2)(i) of the Act states that a corporation incorporated before November 17, 1978 solely in connection with, or for the administration of, a registered pension plan will be exempt from tax under Part I of the Act if, at all times since the later of November 16, 1978 and the date on which it was incorporated, the corporation satisfies the provisions of either subparagraph 149(1)(o.2)(iv) or (v) of the Act.

Accordingly, a corporation that satisfies the requirements of subparagraph 149(1)(o.2)(i) of the Act would not be restricted concerning the corporation's business activities. Excerpts from both the 1978 Budget Supplementary Information and the 1979 Notices of Ways and Means Motions, reproduced in the 14th edition of David M. Sherman's Technical Notes, appear to support such an interpretation.

In your e-mail you quote three technical interpretations, in particular 9221875, which would not appear to support the above interpretation. The opinions expressed in 9221875 concerning pension corporations are based on the provisions of subparagraph 149(1)(o.2)(ii) and paragraph 149(1)(o.1) of the Act. We would argue that the wording under those provisions is quite different from the wording of subparagraph 149(1)(o.2)(i) of the Act. For example, the wording of paragraph 149(1)(o.1) refers to a corporation incorporated and operated solely for the administration of a registered pension plan, whereas, subparagraph 149(1)(o.2)(i) refers to a corporation incorporated solely in connection with a registered pension plan or a corporation incorporated solely for the administration of a registered pension plan.

It would be a question of fact whether a particular corporation satisfies the requirements of subparagraph 149(1)(o.2)(i) of the Act and based on the facts provided above, we cannot make such a determination. However, in our opinion, if the corporation was incorporated in XXXXXXXXXX and was incorporated solely in connection with, or for the administration of, a registered pension plan, the business activities of the corporation would not be restricted for purposes of subparagraph 149(1)(o.2)(i) of the Act.

Roberta Albert, CA
Manager
Income Tax Rulings Directorate
Policy and Legislation Branch