17 April 2007 External T.I. 2007-0225551E5 - Member of Two RPPs

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 person be a member of more than one RPP at the same time?

Position: Yes.

Reasons: There is no provision in the Income Tax Act prohibiting a person from being a member in more than one RPP at the same time. However, the Act does limit contributions that can be made to a defined contribution RPP and benefits that can accrue in a defined benefit RPP through the pension adjustment limits in 147.1(8) of the Act.

XXXXXXXXXX 								2007-022555
G. Allen
April 17, 2007

Dear XXXXXXXXXX:

Re: Participation in Two Registered Pension Plans (RPPs)

This letter is in response to your email sent February 22, 2007 and further to your telephone conversation (Allen/XXXXXXXXXX) on March 22, 2007 concerning your possible participation in two RPPs at the same time. Specifically, in your email you state that your employment with your former employer was terminated in July 2006 and as part of the termination agreement your salary and participation in the company defined contribution RPP will continue until January 2008. You further state that you commenced employment with your new employer in November 2006 and would like to become a member under your new employer's defined contribution RPP. Your former and new employers are unrelated companies. Given these circumstances you have posed the following questions.

1. Does CRA allow participation in and contributions to be made to two RPPs at the same time?

2. Does the $20,000 maximum yearly pension contribution limit for 2007 apply to each RPP or both RPPs?

3. Will receipt of severance pay in 2007 have any impact on the answers to question 1 and 2.

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). All publications referred to herein can be accessed on the CRA website at the following address: http://www.cra-arc.gc.ca/tax/technical/incometax/menu-e.html.

Our Comments

There is no provision in the Income Tax Act (the "Act") that prohibits an individual from being a member in more than one RPP at the same time. However, the Act does contain limits concerning the amount of contributions that can be made to an RPP in respect of a member of the RPP.

The "money purchase limit" as defined in subsection 147.1(1) of the Act, which is $20,000 for 2007, is relevant for purposes of the pension adjustment (PA) limits contained in subsection 147.1(8) of the Act. In general, an RPP will become a revocable plan where an employee's PA for the year in respect of a participating employer in the plan exceeds the lesser of; a) the money purchase limit for the year and b) 18% of the employee's compensation from the employer for the year. The PA limits effectively limit the contributions that can be made to a defined contribution RPP. Where an individual is a member of two RPPs and the plan sponsors of the RPPs are employers that do not deal at arm's length, pursuant to paragraph 147.1(8)(b) of the Act, the combined PAs cannot exceed the money purchase limit for the year.

The CRA's general views regarding retiring allowances and severance payments are contained in Interpretation Bulletin IT-337R4 Consolidated entitled "Retiring Allowances". The following comments concerning the timing of the payment of a retiring allowance and severance payment are contained in paragraph 7 of IT-337R4:

"Where an individual continues to accrue salary and benefits until a date that is subsequent to the date the individual ceases to report to work, the retirement or the loss of office or employment, as the case may be, will be considered to take place only at the later date. However, this does not preclude the payment of a retiring allowance before a loss of office or employment occurs. Unlike the requirement in the definition of retiring allowance that payments in recognition of long service be made on or after a retirement, payments in respect of the loss of an office or employment are not required to be made on or after the individual's loss of an office or employment.

If it can be shown that a payment is in respect of a loss of an office or employment, the payment will constitute a retiring allowance regardless of the fact that the individual's loss of office or employment may occur subsequent to the receipt of such payment. For a payment in advance of the loss of an office or employment to be considered a retiring allowance, there must be evidence that the loss is not speculative or contingent, and that the severing of the employment relationship, including the cessation of all employment benefits, will occur on a specific date."

Accordingly, receipt of your severance pay in 2007 will not affect the answers to questions 1 and 2.

We trust our comments will be of assistance to you.

Yours truly,

Mary Pat Baldwin, CA
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch