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 proposed transfer of assets and liabilities from a US 401(a) pension plan to another US 401(a) pension plan in respect of certain Canadian participants would be taxable to the Canadian participants pursuant to paragraph 6(1)(g) or subparagraph 56(1)(a)(i)?
Reasons: The Canadian participants will not receive or constructively receive any amounts as a result of the transfer.
Re: Advance Income Tax Ruling Request – Transfer between U.S. pension plans
This is in reply to XXXXXXXXXX email of XXXXXXXXXX requesting that we resume our consideration of the request for an advance income tax ruling (“Ruling”) on behalf of the XXXXXXXXXX that was originally submitted in XXXXXXXXXX letter of XXXXXXXXXX. We also acknowledge receipt of XXXXXXXXXX letter of XXXXXXXXXX confirming that the XXXXXXXXXX agrees to be party to the Ruling request, subject to its limitation on statement of facts. We also acknowledge the additional information provided by XXXXXXXXXX by email and in telephone conversations.
To the best of your knowledge and that of the entities involved, none of the proposed transactions or issues involved in this Ruling request are the same as or substantially similar to transactions or issues that are:
i. in a previously filed tax return of the entities or a related person and:
A. being considered by the CRA in connection with such return;
B. under objection by the entities or a related person; or
C. the subject of a current or completed court process involving the entities or a related person; or
ii. the subject of a Ruling request previously considered by this Directorate.
Unless otherwise stated:
i. all references to a statute are to the relevant provision of the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the “Act”), or, where appropriate, the Income Tax Regulations, C.R.C., c.945, as amended, (the “Regulations”);
ii. all terms and conditions used in this Ruling that are defined in the Act (or in the Regulations) have the meaning given in such definition;
iii. all references to monetary amounts are in Canadian dollars; and
iv. the singular should be read as plural and vice versa where the circumstances so require.
The following abbreviations, terms and expressions have the meanings specified, and the relevant parties to the Proposed Transactions (as defined below) will be referred to as follows:
“Affected Canadian Participants” has the meaning assigned by paragraph 16;
“Canadian participant” means a participant of Plan A or Plan B, as applicable, who is resident of Canada;
“CRA” refers to the Canada Revenue Agency;
“IRC” means the United States Internal Revenue Code of 1986, as amended;
“Plan A” means XXXXXXXXXX;
“Plan A Canadian Program” has the meaning assigned by paragraph 6;
“Plan A Trust Agreement” means the Agreement and Declaration of Trust for Plan A, as restated effective XXXXXXXXXX and most recently amended and restated effective XXXXXXXXXX;
“Plan A Trustees” mean the trustees appointed under the Plan A Trust Agreement to administer Plan A;
“Plan B” means XXXXXXXXXX;
“Plan B Canadian Program” has the meaning assigned by paragraph 11;
“Plan B Sponsor” means XXXXXXXXXX;
“Plan B Trust Agreement” has the meaning assigned by paragraph 10;
“Plan B Trustees” mean the trustees to be appointed under the Plan B Trust Agreement to administer Plan B;
“Proposed Transactions” means the transactions described in Paragraphs 8 to 18;
“Proposed Transfer” has the meaning assigned by paragraph 13; and
“RCA” means a retirement compensation arrangement as defined in subsection 248(1).
1. Plan A is a United States multi-employer defined benefit pension plan under which eligible plan participants accrue retirement benefits.
2. Plan A is maintained as a qualified plan under section 401(a) of the IRC.
3. Plan A is established and maintained under the Plan A Trust Agreement, and is maintained and administered by the Plan A Trustees. The Plan A trust is resident of the United States for purposes of the Act.
4. Approximately XXXXXXXXXX% of the participants of Plan A work and live in the United States as at XXXXXXXXXX.
5. Plan A includes a small number of Canadian Participants, estimated to be XXXXXXXXXX participants as at XXXXXXXXXX (approximately XXXXXXXXXX% of the total participants of Plan A).
6. Specific rules (the “Plan A Canadian Program”) established under Plan A, and set out in the Plan A rules document, apply only to Canadian Participants of Plan A. The Plan A Canadian Program contains provisions customarily found in Canadian registered pension plans, including, protection of accrued benefits, vesting, pension eligibility, and benefit formulae. Significantly, a Canadian Participant is prohibited from commencing pension benefits until his or her normal retirement date or the attainment of early retirement eligibility.
7. Plan A is not an RCA by virtue of paragraph (l) of the RCA definition in subsection 248(1). In addition, no portion of Plan A is deemed to be an RCA pursuant to the resident’s arrangement rules in subsections 207.6(5) and (5.1). In particular, the Plan A Canadian Program is administered in such a manner to be exempted from the application of these rules by virtue of satisfying the prescribed contribution conditions in section 6804 of the Regulations relating to foreign plans maintained by foreign non-profit organizations.
8. The Plan B Sponsor will establish Plan B as a United States multi-employer defined benefit pension plan under which eligible plan participants will accrue retirement benefits, with effect from the date referred to in paragraph 17.
9. Plan B will be maintained as a qualified plan under section 401(a) of the IRC.
10. Plan B will be established and maintained under an agreement and declaration of trust (“Plan B Trust Agreement”), and will be maintained and administered by the Plan B Trustees. The Plan B trust will be resident of the United States for purposes of the Act.
11. Specific rules (the “Plan B Canadian Program”) will be established under Plan B, and set out in the Plan B rules document, that will apply only to Canadian Participants of Plan B. The Plan B Canadian Program will be substantially similar to the Plan A Canadian Program.
12. Plan B will not be an RCA by virtue of paragraph (l) of the RCA definition in subsection 248(1). In addition, no portion of the Plan B will be deemed to be an RCA pursuant to the resident’s arrangement rules in subsections 207.6(5) and (5.1). In particular, the Plan B Canadian Program will administered in such a manner so as to be exempted from the application of these rules by virtue of satisfying the prescribed contribution conditions in section 6804 of the Regulations relating to foreign plans maintained by foreign non-profit organizations.
13. The Plan A Trustees and the Plan B Trustees will enter into an agreement (the “Spin-Off Agreement”) to authorize the direct transfer of pension assets and liabilities relating to certain Plan A participants from Plan A to Plan B (the “Proposed Transfer”). None of the affected participants will have any direction or control over the Spin-Off Agreement, other than any general rights that may be afforded under a collective bargaining agreement.
14. The Proposed Transfer will be based on a report and advice by a qualified actuary.
15. The Proposed Transfer will not result in a distribution from Plan A to any affected participants and will not be a taxable event pursuant to the IRC.
16. The Proposed Transfer will apply to approximately XXXXXXXXXX of the Canadian Participants of Plan A (the “Affected Canadian Participants”), which may include active participants, deferred vested participants and retired participants. The Affected Canadian Participants will cease to be participants of Plan A upon completion of the Proposed Transfer. The other estimated XXXXXXXXXX Canadian Participants of Plan A will not be impacted and will remain participants of Plan A.
17. The Proposed Transfer will occur on or about XXXXXXXXXX. Plan B will then continue as an active plan under which active participants will accrue retirement benefits.
18. Due to the requirements of applicable United States law, as well as procedural requirements of the financial institution(s) investing the Plan A pension assets that will be transferred, there may be an administrative or legal necessity for the asset transfer to be finalized subsequent to date referred to in paragraph 17. However, the effective date of the Proposed Transactions remains the date referred to in paragraph 17.
Purpose of Proposed Transactions
19. The purpose of the Proposed Transactions is for Plan B to accept the transfer of pension assets and liabilities relating to certain Plan A participants from Plan A to Plan B and to administer those assets and liabilities on a prospective basis for those affected participants.
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, transactions and the purpose of the transactions, and provided further that the transactions are completed in the manner described above, we rule as follows:
A. No amount will be included in computing the income of an Affected Canadian Participant under subsection 6(1) or paragraph 56(1)(a), nor subject to withholding under subsection 153(1), solely because of the Proposed Transfer.
These rulings are subject to the limitations and qualifications set out in Information Circular IC 70-6R11, Advance Income Tax Rulings and Technical Interpretations, dated April 1, 2021, and are binding on the CRA provided that the Proposed Transactions are completed no later than XXXXXXXXXX.
The above rulings are based on the law as it reads at the date of this letter and do not take into account any proposed amendments to the Act and the Regulations which, if enacted into law, could have an effect on the rulings provided herein.
Nothing in this letter should be construed as implying that the CRA has confirmed, reviewed or made any determination in respect of any tax consequences relating to the facts, or any transaction or event taking place either prior or subsequent to the implementation of the proposed transactions, whether described in this letter or not, other than those specifically described in the rulings given above.
for Division Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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