17 January 1990 Administrative Letter 90M01586 F - Registration of Key Executive 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.

January 17, 1990

Dear Sirs:

Re:  24(1)

This is in response to your letter of October 13, 1989 in which you set out your submissions concerning the registration of one-man or key executive pension plans.

The assumed circumstances are generally that for each plan there is only one member, the employer agrees to make contributions in respect of past service for the employee, and the employee agrees to reduce future remuneration in recognition of the cost incurred by the employer to make contributions in respect of past service.

This situation is addressed in legislation recently proposed to Parliament.  We refer you to subsection 8503(21) of the Draft Amendments to the Income Tax Regulations Relating to Saving for Retirement.

Our response to the submissions you made are as follows:

1.     In some of the cases we have seen where the employee is foregoing future remuneration in order to fund the past service costs, there are side agreements which protect the interests of both parties.  In reviewing these arrangements in their entirety, some of the proposed plans submitted for registration as defined benefit plans may be money purchase plans in substance.

2.     The Minister's power of registration is a discretionary one.The Minister should consider the constitution and operations of the plan in determining whether to accept it for registration, and in doing so should take into account all agreements and documents pertaining to the plan.

3.     The Minister should not register a pension plan if he is of the view that the plan does not meet the policy and objects of the Income Tax Act. This remains so even if a proposed plan meets all of the requirements for registration set out in IC 72-13R8.

4.     GAAR is not of relevance at the registration stage but may become relevant in considering what action can be taken in respect of plans that have been registered.

5.     In the event that the Minister refuses to register a pension plan, a taxpayer has legal recourse through an application for judicial review under the Federal Court Act.  It is possible for a taxpayer to seek a writ of certiorari against the Minister in these circumstances.

6.     Subsection 172(3) of the proposed legislation in Bill C-52 provides the taxpayer with the right of appeal after 1988 to the  Federal Court of Appeal where the Minister refuses to register a pension plan.

Our current position is that on reviewing the registration of one-man pension plan requests we will ask for information concerning the executive's compensation arrangements and confirmation that the executive has not foregone future remuneration in exchange for the employer's contribution to buy back past service.

If the employer and employee are not willing to provide the requested information or confirmation, or if our review indicates the pension plan does not meet the policy and objects of the Income Tax Act, we will not register the pension plan.

We trust you find the above comments of assistance.  Should you wish to make further representations or have any follow-up questions, please do not hesitate to contact either myself or Stella Kotlar (613 954-0933).

Yours truly,

DirectorFinancial Industries DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch