4 March 2009 External T.I. 2008-0300801E5 - Transfer of a Retiring Allowance in a RRSP

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:

Whether a taxpayer's years of services with previous employers can be included in the computation of the amount that is eligible to be transferred to a registered pension plan or a registered retirement savings plan under paragraph 60(j.1) of the Income Tax Act?

Position:

Yes, if some years of service with the previous employers are recognized in determining the retiree's pension benefits.

Reasons:

Subparagraph 60(j.1)(v) provides that a "person related to the employer" includes a previous employer if the employee's years of service with the previous employer is recognized in the determining the retiree's pension benefits.

XXXXXXXXXX 							2008-030080
I. Landry, M. Fisc.
March 4, 2009

XXXXXXXXXX ,

Subject: Eligible Portion of Retiring Allowance

This is in response to your email of November 17, 2008 in which you requested our comments regarding the computation of the amount eligible to be transferred to a registered pension plan ("RPP") or a registered retirement savings plan ("RRSP") under paragraph 60(j.1) of the Income Tax Act (the "Act").

Unless otherwise stated, all statutory references in this letter are references to the provisions of the Act.

The particular situation outlined in your letter appears to relate to a factual one, involving a specific taxpayer. 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, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. We are, however, prepared to offer the following general comments, which may be of assistance.

Paragraph 60(j.1) allows a taxpayer to transfer eligible portions of a retiring allowance to an RRSP or RPP on a tax-deferred basis. The amount that can be transferred is limited to the amount calculated under subparagraph 60(j.1)(ii). Pursuant to clause 60(j.1)(ii)(A), the amount that may be transferred is an amount equal to $2,000 per year for years before 1996 during which the taxpayer was employed by the employer or a person related to the employer. In addition, clause 60(j.1)(ii)(B) provides an additional amount of $1,500 for each year of employment before 1989, during which the taxpayer was employed by the employer, or a person related to the employer, minus equivalent number of years prior to 1989 in respect of which employer contributions to a pension plan have vested. Clause 60(j.1)(ii)(C) provides for a reduction of the amount that may be transferred where a deduction was previously made under paragraph 60(j.1) with respect to retirement allowance paid before the year by the employer or a person related to the employer.

The years of employment that may be counted for the calculation of the amount that is eligible to be transferred to an RRSP are years of employment with the employer or with a "person related to the employer".

Subsection 251(2) defines "related persons" for purposes of the Act. You may refer to Interpretation Bulletin IT-419R "Meaning of Arm's Length" for additional information in this regard.

A person may also be related to an employer by virtue of the extended meaning in subparagraphs 60(j.1)(iv) and (v). Subparagraph 60(j.1)(iv) provides that a person is related to an employer if the employer acquired or continued that person's business. Subparagraph 60(j.1)(v) permits a former employer to be considered to be related where service with the former employer is recognized under the current employer's pension plan. In our view, subparagraph 60(j.1)(v) will not apply where an employee has accrued some years of services under one pension plan, but has not transferred them to the current pension plan and, instead, will be receiving benefits separately out of each pension plan.

However, as is noted in paragraph 22(b) of Interpretation Bulletin IT-337R4, Retiring Allowances, for the purposes of paragraph 60(j.1), where the employer's pension plan recognizes any part of the years of service with a previous employer, then all of the years of service with the previous employer can be included in the calculation of the total number of years pursuant to clause 60(j.1)(ii)(A).

This means that at the time the retiring allowance is paid to the employee, the employee must be entitled to benefits under the current employer's pension plan which relate to all or any portion of the years of service with the former employer. Whether a retiree's service with a previous employer is recognized in determining his pension benefits is a question of fact which may be settled by the retiree's pension administrator.

In a situation where an amount was transferred to a RRSP pursuant paragraph 60(j.1) with respect to a retiring allowance previously received by a taxpayer from his previous employer which is related to the actual employer by reason of subparagraph 60(j.1)(v), the amount of retiring allowance eligible for transfer upon the receipt of a retiring allowance from the actual employer would have to be reduced pursuant clause 60(j.1)(ii)(C).

We trust that these comments will be of assistance.

Yours truly,

Louise J. Roy, CGA
Manager
for acting Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch