12 March 2013 External T.I. 2012-0468271E5 - UK pension transfer to Canada

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 Canadian resident would be entitled to claim a deduction under paragraph 60(j) of the Income Tax Act for a lump-sum transfer from a United Kingdom pension plan to an RRSP? Would this transfer impact the individual's regular RRSP deduction limit?

Position: Where the individual transfers the amount of the lump-sum pension benefit to an RRSP and all of the conditions under subparagraph 60(j)(i) of the Income Tax Act are met, the individual is eligible for a deduction and the corresponding transfer does not impact the unused RRSP deduction room of that individual.

Reasons: Provided for under paragraph 60(j) of the Income Tax Act

XXXXXXXXXX
2012-046827
W. Doiron
March 12, 2013

Dear XXXXXXXXXX:

Re: UK pension transfer to Canada

This is in response to your letter dated October 24, 2012 in which you requested our views on the Canadian taxation of funds received from a United Kingdom ("UK") pension plan by a Canadian resident.

Our Comments

The particular circumstances outlined in your letter relate to a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R5, Advance Income Tax Rulings, this Directorate does not comment on transactions involving specific taxpayers except by way of an advance income tax ruling in respect of proposed transactions. When the situation involves a completed transaction, the question should be directed to the appropriate Tax Services Office for their views, along with all relevant facts and documentation. However, we are prepared to offer the following general comments which may be of assistance. These comments are not binding on the Canada Revenue Agency ("CRA"). The publications referred to in this letter are available on the CRA website at http://www.cra-arc.gc.ca/formspubs.

Subparagraph 56(1)(a)(i) of the Income Tax Act ("Act") requires that a taxpayer include in their income any amount received by the taxpayer in satisfaction of a "superannuation or pension benefit". A "superannuation or pension benefit" is defined in subsection 248(1) of the Act and states that any amount received out of a pension plan, whether received as periodic pension payment or as a lump-sum payment, is considered a "superannuation or pension benefit" and therefore required to be included in the income of the taxpayer in the taxation year received.

The CRA's general views regarding the transfer of amounts from non-registered pension plans to Canadian registered plans are found in Interpretation Bulletin IT-528, Transfers of Funds Between Registered Plans. Paragraph 26 of IT-528 discusses the application of subparagraph 60(j)(i) of the Act which allows a special deduction for a pension benefit received by an individual from a non-registered pension plan, such as a foreign pension plan, that is transferred to a registered pension plan ("RPP") or a registered retirement savings plan ("RRSP"). Since you are not contemplating a transfer to an RPP, we will restrict our general comments to transfers to RRSPs.

The following conditions have to be satisfied for an individual to deduct an amount under subparagraph 60(j)(i) of the Act in computing their income for a taxation year:

• The foreign plan must constitute a superannuation or pension plan for purposes of the Act. The determination of whether a plan is a superannuation or pension plan is a question of fact. Generally, a plan will be considered to be a superannuation or pension plan where contributions have been made to the plan by or on behalf of an employer or former employer of an employee in consideration for services rendered by the employee and the contributions are used to provide an annuity or other periodic payment on or after the employee's retirement.
• The pension benefit must not be part of a series of periodic payments. Only lump-sum payments are eligible for the deduction. A lump-sum payment that represents a settlement of future entitlements under the pension plan, such as a full or partial commutation of pension benefits, would be eligible for the deduction. However, where a lump-sum payment does not represent a settlement of future entitlements under the pension plan, such as a payment of periodic pension payments in arrears or a payment of a retroactive adjustment on the periodic pension payments, that lump-sum payment will be considered part of the series of periodic payments and therefore will not be eligible for the deduction.
• The pension benefit must be attributable to services rendered by the individual (or the individual's spouse or common-law partner) to an employer in a period throughout which the individual was not resident in Canada.
• The pension benefit must be included in the individual's income for the year and not exempt from tax in Canada because of an income tax treaty. In this regard, the Act provides for pension benefits to be included in the recipient's income in the year received and the Canada-UK Income Tax Convention does not limit Canada's right to tax pension payments received from a UK pension plan by a Canadian resident.

The individual must make the RRSP contribution in the year the pension benefit is received or within 60 days after the end of that year. There is no requirement that the RRSP contribution be made by way of a direct transfer from the foreign pension plan. In addition, the individual must designate the RRSP contribution as a transfer in their personal income tax return for the year. The amount of the deduction is limited to the lesser of the amount designated and the amount of the benefit included in income. The deduction is over and above an individual's regular RRSP deduction limit.

We trust that these comments will be of assistance.

Yours truly,

Mary Pat Baldwin, CA
Manager
Deferred Income Plans Section I
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch