26 January 1990 Internal T.I. 59397 F - Deductible Limit on Contributions to an RPP

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.

January 26, 1990

Dear Sirs:

This is in reply to your letter of January 5, 1990 concerning the deductible limit with respect to contributions to a registered pension plan ("RPP").

You mention that a client of yours is considering converting its RPP from a defined benefit plan to a defined contribution plan as of July 1, 1990.  You ask if the greater deductible limit in paragraph 8(1)(m.1) of the Income Tax Act (the "Act"), which applies only to contributions to a defined benefit plan, would apply for 1990 or whether an employee would be restricted to the $3,500 limit in paragraph 8(1)(m) of the Act.  As an example, you ask us to assume that the employee contributes $3,500 to the defined benefit plan during the first six months of 1990 and then makes additional contributions to the defined contribution plan during the remainder of the year.

The Department's position where contributions are made in a year to more than one plan is set out in paragraph 4 of Interpretation Bulletin IT-167R5 dated March 14, 1985, which states:

      "The maximum amount that may be deducted for a taxation year in respect of contributions for current service is $3,500.  If an employee is contributing to more than one fund or plan, the maximum deductible amount of $3,500 applies to the total contributions to all such fund or plans and not separately to each one".

It should be noted that paragraph 8(1)(m.1) of the Act came into force on December 19, 1985 and, as a result, is not reflected in the Bulletin.  Paragraph 8(1)(m.1) provides a deduction in a year for employee contributions to a defined benefit plan, other than voluntary contributions, in excess of $3,500 with respect to services rendered in the year.  Accordingly, the "maximum deductible amount of $3,500" referred to above will be greater only where an amount in excess of $3,500 is required by the defined benefit plan to be contributed to the plan prior to the date of conversion.  Thus, in the above example, the maximum amount deductible by the employee in the year would be $3,500.

The amount deductible by the employer is discussed in paragraphs 27 through 35 of Information Circular 72-13R8.  Photocopies of those paragraphs are enclosed for your perusal.

Note that proposed Pension Reform legislation (Bill C-52) received first reading on December 13, 1989.  With respect thereto, the Department of Finance released a document in December 1989 entitled "Explanatory Notes to Proposed Legislation Relating to Saving for Retirement".  Since the proposed legislation contains amendments to paragraphs 8(1)(m), 8(1)(m.1) and paragraphs 20(1)(q) of the Act, which amendments will be applicable to the 1991 and subsequent taxation years, you may wish to review the proposed legislation and related Explanatory Notes with the view to determining the deduction limits proposed for those years.

We trust that our comments are of assistance to you.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate