24 July 2013 External T.I. 2013-0497761E5 - Income splitting for RCA income

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 distributions out of or under a retirement compensation arrangement (RCA) are eligible for pension income splitting under the Act.

Position: Yes, effective for the 2013 and subsequent taxation years and provided that the amounts received out of or under a RCA meet the conditions in subsection 60.03(1) and the definition of eligible pension income.

Reasons: The legislative amendments to subsection 60.03(1) allow a taxpayer, age 65 or older, to split certain amounts received out of or under a RCA with a spouse or common-law partner.

XXXXXXXXXX
2013-049776
K. Podor

July 24, 2013

Dear XXXXXXXXXX:

Re: Retirement compensation arrangement amounts eligible for pension income splitting

This is in response to your correspondence to the former Minister of National Revenue, the Honourable Gail Shea, which we received on June 25, 2013, concerning the eligibility of amounts received out of a retirement compensation arrangement ("RCA") for pension income splitting under the Income Tax Act (the "Act"). The role of the Canada Revenue Agency (CRA) is to administer and enforce the Act, while the Department of Finance is responsible for tax policy and any proposed changes to the Act.

The Act allows a taxpayer, in certain circumstances, to split eligible pension income with the taxpayer's spouse or common-law partner. Prior to 2013, while the definition of eligible pension income in the Act included life annuity payments out of a registered pension plan (RPP), it did not include payments out of a RCA. Accordingly, payments out of a RCA were not eligible for pension income splitting purposes. For information concerning pension income splitting, we would refer you to the following link on the CRA website: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/pnsn-splt/menu-eng.html.

Effective for the 2013 and subsequent taxation years, the Act is amended to include amounts received out of a RCA, subject to certain conditions, in the definition of eligible pension income for pension income splitting. In general, the conditions that must be satisfied are the following:

• the taxpayer is at least 65 years of age,
• the RCA payments must be in the form of life annuity payments and be supplemental to a pension received out of a RPP, and
• the RCA payments to be split cannot exceed a limit specified in the Act ($94,383 for 2013) minus the taxpayer's other eligible pension income.

Your correspondence indicates that you receive a pension from a public-sector RPP and amounts out of a RCA attributable to the periods of employment for which your RPP benefits are payable. As you are over age 65, you will be eligible to split the amounts received out of a RCA, subject to the limits specified in the Act, with your spouse or common-law partner beginning in the 2013 taxation year.

We trust these comments are helpful.

Yours truly,

Lita Krantz, CPA, CA
Assistant Director
Deferred Income Plans Section II
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch