28 March 1991 External T.I. 9032455 F - Canadian Residents Participating in 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.

5-903245

Dear Sirs:

Re:  Canadian Residents Participating in Foreign Pension Plans

This is in reply to your letter of November 7, 1990 concerning the above-mentioned subject.

You have described the following two situations.

Situation A

Employee has been resident in Canada for less than 60 months of the 72 months preceding the rendering of service (Employee Benefit Plan).

As far as paragraph 1 is concerned, we are unable to confirm your interpretation since the question of whether a trust is resident in Canada is a question of fact.  However, the fact that the beneficiary is a resident of Canada would not, in and by itself, cause the trust to be a resident of Canada.

As far as paragraph 2 is concerned, since the payments are made to an Employee Benefit Plan (EBP), the Canadian company is not entitled to a deduction for its payments to the EBP until such time as the provisions of section 32.1 of the Act have been met. Accordingly, the custodian of the plan would have to satisfy the requirements of section 32.1 of the Act.

We agree with your statements contained in paragraphs 3, 4 and 5.

Situation B

Employee has been resident in Canada for more than 60 months of the 72 months preceding the rendering of service.

I.   Contributions and accumulated earnings thereon related to the period prior to the employee having exceeded 60 months of residency (Employee Benefit Plan)

The comments made above for Situation A, paragraphs l and 2 apply as well to paragraphs 1 and 2 of Situation B, I.

We agree with your comments contained in paragraphs 3, 4 and 5 of Situation B, I.

II.  Contributions and accumulated earnings thereon related to the period after the employee has exceeded 60 months of service and/or residency (Retirement Compensation Arrangement)

1.       We agree with your interpretation that in such a situation contributions to the plan by the Canadian employer (or the U.S. or U.K. parent if charged to the Canadian company) are subject to a withholding tax of 50% pursuant to subparagraph 153(1) of the Income Tax Act and subsection 103(7) of the Income Tax Regulations.

2.        It is the Department's position that where contributions to the plan are made by the non-resident corporation (and not charged back to the Canadian corporation), subsection 207.6(5) of the Act would apply.  Consequently it is our view that these contributions would be subject to the same treatment as described in number 1. above.

3&4.      It is our opinion that an RCA is not generally exempt from tax since such an arrangement is subject to tax on any contributions made into the plan as well as on the excess of the income and capital gains over the losses and capital loss in the year.  The trust (or the custodian of the plan) would therefore be liable for Part XI.3 tax and would be required to satisfy the reporting requirements of subsection 207.7(3) of the Act.

5.        We agree that the employee would not be taxed on either the contributions to or the accumulating income of the RCA trust pursuant to subparagraph 6(1)(a)(ii) of the Act.

6&7.      We agree with your interpretation in both paragraphs.

We trust the above comments will be of assistance to you.

for Director Financial Industries DivisionRulings Directorate