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: Are contributions by Canadian-resident employees to the USRRA deductible for Canadian tax purposes?
Position: No.
Reasons: Plan is no longer a registered pension plan. Payments made after revocation are contributions to an EBP.
XXXXXXXXXX 2004-010387
P. Kohnen, CMA
September 19, 2005
Dear XXXXXXXXXX:
Re: Technical Interpretation - Cancellation of IT-122R2
This is in response to your submission of November 15, 2004 in which you requested our comments in respect of the deductibility of contributions made under the Railroad Retirement Act of the United States by Canadian-resident employees of Canadian National Railway in respect of their employment services in the United States. You specifically requested whether such payments could be deducted as contributions to a registered pension fund or plan ("RPP").
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. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.
Paragraph 5 of Interpretation Bulletin IT-122R2 - United States social security taxes and benefits, which was published on March 13, 1989 and is now archived, had reflected that a payment which an employee makes as a contribution under the U.S. Railroad Retirement Tax Act (the "USRRA") could be dealt with as a contribution to a registered pension fund or plan. However, the registration of the USRRA as an RPP was revoked with effect from January 1, 1997. In our view, employee contributions made under the USRRA from that date onward would generally be considered to be contributions to an employee benefit plan and would not be deductible for Canadian tax purposes.
As is noted in Income Tax Technical News ("TN") No. 31R dated November 24, 2004, which cancelled and replaced TN-31, it is our view that mandatory foreign social security contributions paid by a Canadian taxpayer to the U.S., other than U.S. FICA payments, will no longer be accepted as non-business income tax for foreign tax credit purposes.
Accordingly, effective for the 2004 and subsequent taxation years, the above-referenced employee contributions cannot be claimed as a foreign tax credit for Canadian tax purposes.
We trust that the above comments will be of assistance to you. Please do not hesitate to contact Mr. Phil Kohnen at (613) 957-2093 should you require further information.
Yours truly,
Roberta Albert, CA
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
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