8 March 1990 Internal T.I. 74719 F - Additional Employer Contribution on Termination of Money Purchase Pension Plan

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.

March 8, 1990

Subject: Treatment of Additional Employer contribution on  Termination of a Money Purchase Pension Plan Your File - ITR 39868

This is in reply to your memorandum of February 8, 1990 prepared by M. Tetrault concerning the deductibility of an employer contribution that is required under provincial pension laws on plan termination of a money purchase pension plan.

You provided us with the following relevant information and comments.

Ontario pension laws require that money purchase pension plans allow members to receive their pension benefits in the form of cash payments on plan termination.  While this option meets your rules, the additional provincial requirement that the employer fund any shortfalls does not.

In many money purchase plans, guaranteed annuity benefits are purchased each year with the annual contributions made to the plan.   If the members choose to commute their benefits on plan termination the Canadian Institute of Actuaries' Minimum Transfer Value Rules must be used to calculated the amount.  The commuted value of the annuity.  As such, there is a shortfall in the plan.

The provincial pension laws require the employer to contribute the amount required to fund this shortfall.  Therefore, you have agreed to permit the amounts to be contributed to the plans (contrary to paragraph 11(a)(ii) of Information Circular 72-13R8).  Further you are concerned that neither paragraph 20(1)(q) nor 20(1)(s) of the Income Tax Act ("Act") appears to provide for the deduction of such contributions by the employer.

Existing paragraphs 20(1)(q) and (s) of the Act are the only provisions of the Act that provide for the deduction of an employer's contribution to a registered pension plan ("RPP"). Generally, where any portion of an employer's contribution to an RPP does not meet the requirements of those provisions such portion will neither qualify for a deduction thereunder or under any other provision of the Act, in computing the employer's income.

We suggest that existing paragraph 20(1)(s) of the Act may permit the deduction of the employer's special contribution on termination of a money purchase RPP.  The closing words of that provision indicate "for great certainty... it is hereby declared that this paragraph is applicable  where the resources of a fund or plan are required to be augmented by reason of an increase in the superannuation or pension benefits payable out of or under the fund or plan".  Also the definition of "superannuation or pension benefit" under subsection 248(1) contemplates a payment made to a beneficiary of an RPP "(c) resulting from the termination of the fund or plan;".

21(1)(b)

Let us know if we can be of further assistance with respect to this issue.

for Director Financial Industries DivisionRulings Directorate