21 March 1990 Ministerial Correspondence 74664 F - Pension Payments

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.

SUBJECT: Pension Payments

This is in reply to the memorandum dated January 22, 1990 prepared by B.D. Richardson concerning a number of questions raised by 24(1) with respect to the treatment of certain payments made by pension plans.

Our comments follow the order of the questions raised by 24(1) in their letter dated November 22, 1989.

1.     We agree with your proposed response to this question.

2.     Generally, a return of contributions to an employee would be considered a lump sum payment.  Further, proposed section 147.3 of the Income Tax Act ("Act") provides detailed rules for the direct transfer after 1988 of a lump sum payment from a registered pension plan ("RPP") to another RPP, and in some cases to an RRSP.  You may wish to discuss this Department's ongoing administrative treatment of such direct transfers with officials in our Enquiries and Taxpayer Assistance Division.

     Concerning the use of a lump sum pension payment to acquire a life annuity, generally, if the annuity is acquired in the name of the employee (or former employer), the lump sum payment would be included in the employee's income at that time under subparagraph 56(1)(a)(i) of the Act without any tax relief.

3.     Generally, a single payment made on or before retirement in respect of auxiliary benefits under a pension plan would be a lump sum payment rather than a payment in respect of periodic payments.  However, the facts of a particular case require review in order to determine if such a payment before retirement could qualify as a lump sum payment under paragraph 103(6)(a) of the Income Tax Regulations ("Regulations") for purposes of subsection 103(4) of the Regulations.

     Refer to our comments under 2. above re direct transfers and the acquisition of a life annuity.

4.     We lack specific information in our files concerning the ability of an individual in Quebec to receive a portion of his pension from an RPP where he chooses to remain in the employ of his employer after normal retirement.  Perhaps you could ask 19(1) to provide us with all relevant information in such cases for our consideration.  Alternatively, officials in the Registered Pension & Deferred Income Plans Division, Registration Directorate, may be able to provide you with this information.

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

for DirectorFinancial Industries DivisionRulings Directorate