6 March 1990 Ministerial Letter 59538 F - RRSP Contribution Limits

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.

19(1)

March 6, 1990

Dear Sirs:

This is in reply to your letters dated February 6, 9 and 13, 1990 in which you requested our views concerning the maximum 1989 and 1990 RRSP contribution limits available for employees under subsection 146(5) of the Income Tax Act ("Act") in various hypothetical circumstances outlined by you.

Our comments will follow the order of the situations outlined in your February 6, 1990 letter.

1.     An employee of Co. A is not a member of a registered pension plan ("RPP") in 1989, as he will not meet the service requirement that is a precondition for membership until February 1, 1990. Once the service requirement has been met, membership is mandatory. The RPP provides for the accrual of benefits with respect to pre-membership service in 1989.

(a)     Benefits are not vested in the member until 1992.

(b)     Benefits vest immediately upon membership.

     In our view the contribution limit in paragraph 146(5)(a) of the Act would apply to the employee in 1989 and 1990 under both of 1(a) and (b) since benefits will have accrued under the RPP in those years on behalf of the employee.  (For 1990, we assume that the employee will become a member of the RPP on February 1, 1990 and will remain an employee of Co.A and a member throughout 1990.) The timing for the vesting of pension benefits (e.g., the attainment of age x or say ten years of service) under an RPP generally will not affect the application of paragraph 146(5)(a) of the Act.

2.     The same circumstances apply as in 1. above, with the exception that the RPP will be amended the accrual of benefits for to remove pre-membership service.  The amendment will be made on January 31, 1990;  but it will deny recognition of 1989 service.

a)     Contributions are made by employees in 1989 in respect of the 1989 taxation year, and 1990, in respect of the 1989 and 1990 taxation years, prior to the date of the amendment.

b)     Contributions are made by employees in 1990, in respect of the 1989 and 1990 taxation years, subsequent to the date of amendment.

     Further you indicated in your February 9, 1990 letter that we are to assume the RPP has been administered in accordance with the proposed amendments since, say, January 1, 1988.

     In scenario (a) it is our view that the contribution limit in existing paragraph 146(5)(a) of the Act will apply to the employee in 1989 since the employee is in 1989 a person who made contributions to, and may become entitled to benefits under the pension plan upon satisfying the service requirement for membership. Also, for your information subclause 13(24)(a) of Bill C-52 proposes to amend subsection 146(5) of the Act, in its application to the 1987 to 1990 taxation years.  The relevant explanatory note indicates in part that this provision is "amended to clarify that the $3,500 ceiling for RRSP contributions in a year applies for each year in which a taxpayer becomes entitled to benefits under a pension plan in respect of employment in the year, even though the taxpayer's employer may not have to make contributions to the plan in respect of the year." Any questions on the proposed legislation, prior to its enactment, should be addressed to the Department of Finance.

     In 1990 it is our view that the contribution limit in paragraph 146(5)(a) will apply to the employee since the employee will make contributions to the pension plan and the accrual of benefits for 1990 begins upon the employee becoming a member of the plan.  Again we assume the employee will remain a member, and be an employee of Co. A throughout 1990.

     In scenario (b) it is our view that the contribution limit under existing paragraph 146(5)(a) will apply in each of 1989 and 1990 where it is mandatory for an employee to join the pension plan and to acquire 1989 service in 1990 upon satisfying the plan's service requirement.

3.     In 1990, membership in an RPP and/or the accrual of benefits for pre-membership service is optional.  Vesting is immediate. For example,

(a)     effective January 1, 1990 a person who was an employee in 1989 must either join a RPP or a group RRSP.

(i)     The option in (a) must be exercised before 1990.

(ii)     the option in (a) may be exercised at any time within the first 30 days of 1990.

(b)     a member who completes two years of employment is entitled to elect to join the employer's RPP on February 1, 1990, and to elect to acquire past service benefits, and

(i)     the member does not elect to join in 1990; or

(ii)       the member elects to join the plan and begins to earn pension in respect of employment on and after February 1, 1990; or

(iii)      the member makes the election under paragraph (ii) and makes a further election to acquire defined benefits in respect of employment in 1989.

(A)       by making a past service contribution in respect of the full actuarial cost of such benefits, plus interest;

(B)       by making a past service contribution in respect of a portion of the actuarial cost (the employer will subsidize the cost).

(c)     A person who is employed on February 15, 1990 must make an election to join a group RRSP or an RPP on or before March 1, 1990. Benefits under the RPP accrue from March 1, 1990 and;

(i)      vest immediately; or

(ii)     vest on March 1, 1992.

     Concerning the scenarios in (a) and (b) we are not prepared to comment upon the impact of either (i) the optional accrual of benefits for pre-membership service, or (ii) the election to join the employers RPP, upon the determination of an employee's RRSP contribution limit for 1989 or 1990.  These issues are complex under existing subsection 146(5) of the Act, and we must also consider the application of proposed subsection 146(5) to those years. We suggest that you wait until Bill C-52 is enacted, and then consider a request for a formal ruling in an appropriate case for the 1990 or any subsequent year.

     In scenario (c) it is our view that the 1990 contribution limit in existing paragraph 146(5)(a) will apply to a taxpayer who is employed on February 15, 1990 and elects to join an RPP no later than March 1, 1990 since benefits thereunder are, we understand, to be accrued on his behalf from March 1, 1990. Again we assume the employee will remain a member of the RPP, and an employee of Co. A throughout 1990.

We trust that our comments will be of assistance to you.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate