23 May 2012 External T.I. 2011-0425771E5 - Transfer of Retiring Allowance to an 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 service with previous employers can be included in the calculation of the amount that is eligible to be transferred to a registered retirement savings plan?

Position: Question of fact.

Reasons: The requirements of paragraph 60(j.1) must be met.

XXXXXXXXXX
						2011-042577

May 23, 2012

Dear Ms. XXXXXXXXXX:

Re: Transfer of Retiring Allowance to a Registered Retirement Savings Plan (“RRSP”)

We are writing in response to your letter dated October 13, 2011 wherein you requested written confirmation regarding the amount of your retiring allowance that is eligible to be transferred to an RRSP on a tax-deferred basis.

In your letter, you set out your employment history with previous employers. You note that you retired as an employee on XXXXXXXXXX and you will receive a retiring allowance from your last employer. Your question is whether the years of employment with previous employers can be counted in determining the amount of the retiring allowance that may be transferred to an RRSP.

Although we cannot comment directly on your situation, we are able to provide you with the following general comments which may be of assistance.

The Canada Revenue Agency’s (“CRA”) general views regarding retiring allowances are contained in Interpretation Bulletin IT-337R4, Retiring Allowances, a copy of which is available on the CRA website at http://www.cra.gc.ca . In particular, paragraphs 19 through 22 of IT-337R4 discuss the interpretation and application of paragraph 60(j.1) of the Income Tax Act (the “Act”) in detail.

Paragraph 60(j.1) of the Act generally allows a taxpayer to deduct an amount in computing the taxpayer’s income for a year where all or a portion of a retiring allowance that was received in the year by the taxpayer is contributed to the taxpayer’s RRSP. In general terms, the amount that may be deducted under paragraph 60(j.1) of the Act is limited to the total of:

$2,000 times the number of years before 1996 during which the taxpayer was employed by the employer or a person related to the employer; and

(A) $1,500 times
(i) the number of years before 1989 during which the taxpayer was employed by the employer or a person related to the employer minus
(ii) the equivalent number of years before 1989 in respect of which contributions to a pension plan or deferred profit sharing plan by the employer or a person related to the employer vested in the taxpayer at the time the retiring allowance was paid.

Whether a prior employer is “related” to the payer of the retiring allowance is a question of fact to be determined in accordance with the rules in section 251 of the Act. If two employers are not related within the usual meaning of the word under the Act, they may also be related by virtue of a special rule in subparagraph 60(j.1)(v) of the Act. This special rule permits a former employer to be considered to be related for purposes only of the retiring allowance transfer rules, where service with the former employer is recognized under the current employer’s pension plan, such as when an employee has bought back pensionable service for years of service with a former employer. In such a case, the years of service with both employers may be considered for purposes of paragraph 60(j.1) of the Act. This position will also apply where service with both employers is recognized under the same pension plan. Note that where two employments occur in one year, the year can only be counted once.

In summary, the amount of a retiring allowance which may be transferred on a tax-deferred basis to an RRSP pursuant to paragraph 60(j.1) of the Act is equal to $2,000 times the number of years before 1996 the taxpayer was employed by the payer of the retiring allowance or an employer related to the payer. In addition, the taxpayer may also transfer an additional $1,500 for each year before 1989 the taxpayer was so employed as long as no employer contributions to a pension plan or deferred profit sharing plan have vested in the taxpayer for those years.

We trust that our comments will be of assistance.

Yours truly,

Jenie Leigh
Section Manager
for Division Director
Financial Industries Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch