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: Can a corporation deduct certain RPP contributions in respect of two individuals?
Position: Question of fact.
Reasons: It is unclear whether an employer-employee relationship existed at any time between the corporation and one of the individuals. It is also unclear whether an employer-employee relationship existed for either of them after the corporation ceased business operations
XXXXXXXXXX 2006-018748
Renée Shields
(613) 948-5273
June 6, 2006
Dear XXXXXXXXXX:
Re: Deductibility of contributions to a registered pension plan
This is in response to your letter of October 14, 2005 inquiring whether a corporation can deduct contributions made to a registered pension plan ("RPP").
The situation outlined in your letter appears to relate to a factual one, involving a specific taxpayer. It is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. For more information about how to obtain a ruling, please refer to Information Circular 70-6R5, "Advance Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office ("TSO") for their views. A list of TSOs is available on the "Contact Us" page of the CRA website.
As we noted during our telephone conversation on April 26, 2006 (Shields/XXXXXXXXXX), several factual questions arise from the situation you have described that make it difficult to provide a technical interpretation of the provisions that apply to your question.
In order to be deductible under paragraph 20(1)(q) of the Income Tax Act (the "Act"), a contribution to an RPP must meet the conditions described in subsection 147.2(1) of the Act. One of the conditions is that the contribution be made by an employer in respect of its employees. Further entrenching the requirement of an employer-employee relationship is paragraph 8503(3)(a) of the Income Tax Regulations which stipulates that an RPP may only provide lifetime retirement benefits in respect of "eligible service", which is defined in the provision.
In the situation you have described, a corporation established pension plans for its president and for the president's spouse. It is not clear from this description whether an employer-employee relationship existed between the spouse and the corporation. In the absence of such a relationship, a valid RPP would not have been established and contributions would never have been deductible under subsection 147.2(1) of the Act.
Assuming it could be demonstrated that the spouse was an employee of the corporation when the RPP was established, the issue arises once again when the corporation ceased operations in Year 2. Your letter indicates that at the time the corporation's business ceased, the two individuals had not yet attained the age of 50. Presumably due to the terms of the RPPs, this meant that they were not yet eligible to begin drawing their pensions from their respective plans. Your letter indicates that for this reason, the corporation continued to make pension contributions until Year 4 when each of the individuals turned 50. It is a question of fact whether an employer-employee relationship existed for the balance of Year 2 after the cessation of operations as well as during Years 3 and 4. For the reasons described above, this has a significant impact on the deductibility of the RPP contributions.
We trust that these comments will be of assistance.
Yours truly,
John Oulton, CA
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2006
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2006