31 August 2004 External T.I. 2004-0071741E5 - RRSP deduction limit

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: If a taxpayer ceases to be a member of an employer sponsored pension plan in a particular year such that their pension adjustment amount is reduced for that year, will the taxpayer's RRSP deduction limit be affected for that same year?

Position: No

Reasons: It is clear in the legislation, a taxpayer's RRSP deduction limit is reduced by the taxpayer's pension adjustment for the preceding taxation year - not the current year.

XXXXXXXXXX
		2004-007174
	Kimberly Duval
August 31, 2004							(613) 957-8982

Dear XXXXXXXXXX:

Re: Registered Retirement Savings Plan Deduction Limit

This is in response to your facsimile of April 15, 2004 inquiring about the calculation of your registered retirement savings plan ("RRSP") deduction limit for the 2003 and 2004 taxation years. Specifically, you have asked us to confirm the accuracy of your 2003 Notice of Assessment with respect to the allowable RRSP deduction of $1,000 and the calculation of your RRSP deduction limit for 2004.

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 Revenue Agency ("CRA"). Note that all publications referred to herein can be accessed on the CRA website at the following address: http://www.cra-arc.gc.ca/formspubs/menu-e.html.

The CRA's general views regarding RRSPs can be found in tax guide T4040 entitled RRSPs and Other Registered Plans for Retirement, as well as in Interpretation Bulletin IT-124R6, Contributions to Registered Retirement Savings Plans. Specifically, Chapter 2 of the tax guide provides general information on contributions that can be made to an RRSP, whereas the Interpretation Bulletin provides more technical information.

As explained in the T4040 tax guide, an individual may make annual contributions to an RRSP based on certain RRSP limits. These RRSP limits are based on the individual's earned income for the immediately preceding year (to a maximum RRSP dollar limit which is $14,500 and $15,500 for each of 2003 and 2004 respectively) minus an adjustment, referred to as a "pension adjustment" or simply, "PA", which takes into consideration benefits accrued in that preceding year under a registered pension plan or deferred profit sharing plan.

For example, a taxpayer's RRSP deduction limit for the 2004 taxation year is based on the earned income and PA for 2003, while the 2003 RRSP deduction limit would have been based on the earned income and PA from 2002.

Therefore, when an employee ceases to be a member of an employer sponsored pension plan such that contributions to the company plan are no longer being made, the employee's PA will be reduced for that year. Assuming the employee has consistent earned income from year to year, this reduction in the PA will result in an increase to the employee's RRSP deduction limit for the following year.

Your local Tax Services Office is responsible for the accuracy of your 2003 Notice of Assessment with respect to the allowable RRSP deduction amount for 2003 and the calculated RRSP deduction limit for 2004. However, we can confirm that any amount reported by your employer as a PA amount on your 2003 T4 slip will reduce your RRSP deduction limit for the 2004 taxation year, as explained above.

We trust that these comments will be of assistance.

Roxane Brazeau-LeBlond, C.A.

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