7 November 2013 External T.I. 2013-0501021E5 - Eligible income for pension income splitting

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 amounts received out of a supplementary employee retirement plan (SERP) are eligible for pension income splitting under the Act?

Position: Where the plan is funded, the arrangement is considered to be an RCA and amounts reported on the T4A-RCA are eligible for income splitting. Where the plan is unfunded, the amounts are not reported on a T4A-RCA and are not eligible for income splitting.

Reasons: The amended definition of eligible pension income in subsection 60.03(1) does not include payments out of an unfunded SERP.

XXXXXXXXXX
2013-050102
K. Podor

November 7, 2013

Dear XXXXXXXXXX:

Re: Eligible income for pension income splitting

This is in response to your correspondence dated August 13, 2013, wherein you requested our opinion regarding the eligibility of amounts received out of a supplementary employee retirement plan ("SERP") for pension income splitting under the Income Tax Act (the "Act"). Also, you enquired whether the amendments to the definition of eligible pension income in subsection 60.03(1) of the Act to include payments out of a retirement compensation arrangement ("RCA") are limited to amounts reported on a T4A-RCA, "Statement of distributions from a retirement compensation arrangement (RCA)".

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 the pension received out of a registered pension plan ("RPP"), other than an individual pension plan as defined in the Income Tax Regulations, 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.

A SERP is a plan or arrangement, either funded or unfunded, that provides supplementary benefits to the beneficiary. Where such a plan is funded, the arrangement would generally be considered an RCA. However, where the plan is unfunded, the arrangement is not considered to be an RCA. As noted above, the amended definition of eligible pension income in subsection 60.03(1) of the Act only includes, among other things, payments out of an RCA in the form of life annuity payments that are supplemental to a pension received out of a RPP. As a result, payments out of an unfunded SERP are not eligible for pension income splitting.

We trust these comments are helpful.

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