6 February 1990 External T.I. 59425 F - Foreign Pension Plans

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.

February 6, 1990

Dear Sirs:

Re:  Foreign Pension Plans

Your letter of November 25, 1989 addressed to the Toronto District Taxation Office has been referred to this office for reply.

You mention that one of your clients has been receiving periodic pension income from a non-registered U.S. company pension plan (the "Plan").  He has been transferring the pension payments to his registered retirement savings plan ("RRSP") and you ask if he will be able to continue doing so after 1989.  You further ask if he will be able to transfer tax-free ("rollover") those payments to a spousal RRSP, up to $6,000 for each of the years 1989 through 1994, in accordance with proposed legislation.

Our Comments

With respect to the $6,000 rollover to a spousal RRSP, proposed legislation introduced in December 1989 (proposed paragraph 60(j.2)) provides for such a rollover only where periodic payments are being received out of a registered pension plan or deferred profit sharing plan.  Since the Plan is neither of these, the $6,000 rollover to a spousal RRSP will not be available to your client if the legislation is enacted as proposed.  A photocopy of the proposed legislation is enclosed for your perusal.

For the 1990 and subsequent taxation years, the proposed legislation provides that, among other stipulations, an amount received out of a non-registered pension plan may be rolled over to an RRSP only where the amount is not part of a series of periodic payments (see proposed amendment to paragraph 60(j) of the Income Tax Act (the "Act")).  Thus, if the amendment to paragraph 60(j) is enacted as proposed, your client will not be able to rollover to his RRSP periodic pension payments received out of the Plan after 1989.  Enclosed is a photocopy of the relevant Explanatory Note issued by the Department of Finance.

A plan of this type is normally an employee benefit plan but it is also one to which the retirement compensation arrangement ("RCA") rules of the Act may apply.  For example, notwithstanding that paragraph (1) of the definition of an RCA in subsection 248(1) of the Act normally excludes such plans from the RCA rules, subsection 207.6(5) of the Act provides that the RCA rules will apply to such a plan where contributions are made in respect of services rendered by an employee who was resident in Canada when the services were rendered, unless the employee was a member of the plan before he became resident in Canada AND had been so resident for not more than 60 of the 72 months preceding the time the services were rendered.

We note however that contributions to which subsection 207.6(5) would otherwise apply may be exempted, for years before 1991, from the RCA rules by virtue of a proposed exemption discussed at pages 73 and 74 (see copies enclosed) of the document "Saving for Retirement:  A guide to the Tax Legislation and Regulations" released by the Department of Finance in December 1989.  This proposed exemption will apply where the conditions set out therein are met.

The following comments summarize in general terms the taxation of amounts received or to be received out of the Plan where the RCA rules apply and where those rules do not apply, on the assumption that the Plan was established before October 9, 1986, and the extent to which amounts received by your client out of the Plan both BEFORE 1990 and after 1989 may be rolled over to his RRSP.

1.     RCA Rules Apply

(a)       Amounts received out of the Plan that relate to contributions (both the employee's and the employer's) made to the Plan after 1987 (or such earlier date after October 8, 1986 on which the Plan was materially altered) and any earnings thereon are included in income under paragraph 56(1)(x) of the Act.  A rollover to an RRSP is not available for periodic pension payments included in income under paragraph 56(1)(x).

(b)       With respect to the employee's own contributions that are included in income under 1(a) above, a deduction is available pursuant to paragraph 60(t) of the Act.

(c)       The balance received out of the Plan is taxed as follows:

(i)      The balance received out of the Plan that is in excess of the employee's own contributions (other than those contributions referred to in 1(b) above) is included in income under paragraph 6(1)(g) of the Act, except to the extent that the amount is attributable to services rendered while the employee was not resident in Canada (see (iii) below).

(ii)      A rollover to an RRSP is not available with respect to an amount included in income under paragraph 6(1)(g) of the Act, as described in (c)(i) above.

(iii)       As indicated in (c)(i) above, the balance received out of the Plan (in excess of your client's own contributions) that is attributable to services rendered while he was not resident in Canada is not included in income under paragraph 6(1)(g) of the Act.  Rather, by virtue of subparagraph 6(1)(g)(iii), it is taxable under subparagraph 56(1)(a)(i) of the Act and a rollover to an RRSP is available with respect thereto.  However, by virtue of proposed legislation as noted above, an amount described in subparagraph 6(1)(g)(iii) may be rolled over to an RRSP after 1989 only if the amount is received out of the Plan in a lump sum; i.e., it cannot be one of a number of periodic payments to be received out of the Plan.

2.     RCA Rules do not Apply

     All amounts received out of the Plan in excess of your client's own contributions are included in income under paragraph 6(1)(g) of the Act, except as noted in (c)(iii) above.  A rollover to an RRSP is available only to the extent mentioned in (c)(iii) above.

The above comments are expressions of opinion only and are not binding on the Department, as stated in paragraph 24 of Information Circular 70-6R.  We trust however that they are of assistance to you.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate