Translation disclaimer
This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.
Principal Issues: [TaxInterpretations translations] RRSP deductions - Judges
Position: Application of the Act and Regulations.
Reasons:
F2000-0002735, E9732365, F970450A, E9704508, E954070A, F964070B, E9640708, F9619548, E9531078, E9420505, E932999A, E3M5821, F9236438, E9232368, E9205498.
XXXXXXXXXX 2003-002755
Adèle St-Amour, CA
September 17, 2003
Dear XXXXXXXXXX,
Subject: Contribution to a registered retirement savings plan ("RRSP")
This is in response to your letter of June 20, 2003 requesting our views on the amounts that federally appointed judges may deduct as RRSP contributions as a result of the Budget 2003 measures to increase RRSP contribution limits.
Subsection 146(1) of the Income Tax Act (the "Act") defines "RRSP deduction limit" as follows:
[…] the amount determined by the formula
A + B + R - C
where
A is the taxpayer’s unused RRSP deduction room at the end of the preceding taxation year,
B is the amount, if any, by which
- (a) the lesser of the RRSP dollar limit for the year and 18% of the taxpayer’s earned income for the preceding taxation year
exceeds the total of all amounts each of which is
- (b) the taxpayer’s pension adjustment for the preceding taxation year in respect of an employer, or
- (c) a prescribed amount in respect of the taxpayer for the year,
C is the taxpayer’s net past service pension adjustment for the year, and
R is the taxpayer’s total pension adjustment reversal for the year;
Following the federal budget of February 18, 2003, a Notice of Ways and Means Motion was released by the Minister of Finance on March 19, 2003, which amended, inter alia, the definitions of "RRSP limit" and "money purchase limit" in subsections 146(1) and 147.1(1) respectively.
The Notice of Ways and Means Motion proposes to amend the definition of "RRSP limit" to be $14,500 for 2003 and for years after 2003, it will continue to be equal to the "money purchase limit" for the previous year. As a result of the changes, the "money purchase limit" and the "RRSP limit" will be equal to the following amounts:
| |
Money purchase limit
|
RRSP Limit
|
|
2003
|
$15,500
|
$14,500
|
|
2004
|
$16,500
|
$15,500
|
|
2005
|
$18,000
|
$16,500
|
|
2006
|
Indexed
|
$18,000
|
|
2007
|
Indexed
|
Indexed
|
This amendment applies after 2002 with a proviso that is set out in clause 84(2) of the Notice of Ways and Means Motion. This clause states, inter alia, that for the purposes of determining an amount prescribed in respect of an individual under section 8309 of the Income Tax Regulations (the "Regulations"), for the 2003 calendar year, the money purchase limit for 2002 is deemed to be $14,500. According to the Explanatory Notes, this rule is to ensure that those individuals do not accidentally receive an increased RRSP limit of $1,000 for 2003.
However, we wish to inform you that a change has also been made to the calculation of the prescribed amounts for 2001 and subsequent calendar years. This amendment to subsection 8309(2) of the Regulations is to permit judges to contribute to an RRSP commencing in the year following the year in which their contributions to the judges pension plan are reduced from 7 per cent to 1 per cent of salary, pursuant to new subsection 50(2.1) of the Judges Act. The reduced contribution rate applies to judges who are eligible to retire on a full pension but who continue to work, including supernumerary judges, judges with at least 15 years of service whose age and years of service add up to at least 80, and judges referred to in section 41.1 of the Judges Act. The restoration of an RRSP deduction limit for judges in those circumstances is consistent with the measures provided for members of employer-sponsored pension plans who cease to accrue benefits while still employed.
Specifically, subsection 8309(2) of the Regulations provides that the prescribed amount for a year is equal to the lesser of (i) 18 per cent of the portion of the judge's salary for the preceding year in respect of which contributions were required to be made under subsection 50(1) or (2) of the Judges Act, less $600, and (ii) the money purchase limit for the preceding year, less $600.
The latter amount is calculated in proportion to the number of months in the year in which the judge received the salary in question. For years prior to 2005, subsection 8309(3) of the Regulations provides that the prescribed amount is to be determined without deducting $600 from the money purchase limit. However, the Department of Finance has informed the Agency that subsection 8309(3) will also be amended to allow the deduction of the $600 beginning in 2004 instead of 2005 (this amendment is referred to in question 11 of the document "Budget 2003 - Questions and Answers" on our website: http://www.ccra.gc.ca/tax/registered/budget2003-e.html.)
Attached are examples that illustrate the calculation of the "RRSP deduction limit" for the years 2003, 2004 and 2005. For the purposes of the calculations, we have assumed that the amendments proposed in the February 18, 2003 budget and subsequently included in a Notice of Ways and Means Motion to amend the Act, released on March 19, 2003, will be enacted as proposed.
We hope that this information is of assistance.
Best regards,
For the Director
Financing and Plans Division
Income Tax Rulings Directorate
Policy and Legislation Branch
Example 1
An individual worked as a judge in 2002, 2003 and 2004 and received an annual salary of $198,000, pursuant to subsection 50(2) of the Judges Act.
Calculation of the prescribed amount for 2003, 2004 and 2005:
The prescribed amount for the judge for the 2003 taxation year is $14,500, the lesser of
(i) (18% x $198,000) - $600 = $35,040, and
(ii) $14,500
The prescribed amount in respect of the judge for the 2004 taxation year is $15,500, the lesser of
(i) $35,040, and
(ii) $15,500
The prescribed amount for the judge for the 2005 taxation year is $15,900, which is the lesser of
(i) $35,040
(ii) $16,500 - $600 = $15,900
Calculation of "RRSP Deduction Limit:
For 2003, the amount is nil (i.e., the lesser of (i) the RRSP limit for 2003 ($14,500) and (ii) $35,640 (18% x $198,000), less the prescribed amount ($14,500)).
For 2004, the amount is nil (i.e., the lesser of (i) the RRSP limit for 2004 ($15,500) and (ii) $35,640 (18% x $198,000), less the prescribed amount ($15,500)).
For 2005, the amount is $600 (the lesser of (i) the RRSP limit for 2005 ($16,500) and (ii) $35,640 (18% x $198,000), minus the prescribed amount ($15,900)).
Note:
These calculations do not take into account the proposed changes to apply the $600 reduction beginning in 2004 instead of 2005 in determining the prescribed amount in (ii) above.
Example 2
On April 1, 2002, a judge becomes eligible to retire with a full pension. The judge’s pension contributions are reduced to 1% of salary, in accordance with subsection 50(2.1) of the Judges Act. In 2002, the judge's annual salary was $198,000 and was paid in equal monthly payments. The portion of the salary on which the judge was required to make contributions at the rate of 7% was $49,500 (3/12 x $198,000).
The prescribed amount for the judge for the 2003 taxation year is $3,625, which is the lesser of
(i) (18% x $49,500) - $600 = $8,310, and
(ii) ($14,500 x 3/12) = $3,625
For 2003, the judge's "RRSP deduction limit" is $10,875 (the lesser of (i) the RRSP dollar limit for 2003 ($14,500) and (ii) $35,640 (18% x $198,000), less the prescribed amount ($3,625)).
Example 3
An individual is appointed as a judge on November 1, 2002 with an annual salary of $198,000. For the two months in 2002, he receives a salary of $33,000 (2/12 x $198,000). He worked in a law firm prior to November 2002 and was not a member of a pension plan. His salary for 2002 as a lawyer was $150,000.
The prescribed amount for the judge for the 2003 taxation year is $2,417, which is the lesser of
(i) (18% x $33,000 - 600 = $5,340, and
(ii) ($14,500 x 2/12) = $2,417
For 2003, the judge's "RRSP deduction limit" is $12,083 (the lesser of (i) the RRSP dollar limit for 2003 ($14,500) and (ii) $32,940 (18% x $183,000), less the prescribed amount ($2,417))
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