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.
April 22, 1993
| Registered Plans Division |
Financial Industries |
| S.M. Kotlar |
Division |
| Director |
D. Duff 957-8953 |
Attention: Kevin Smith
The 2% limit referred to in paragraph 8503(3)(g)
This is in response to your memorandum dated December 23, 1992 regarding the interpretation of paragraph 8503(3)(g) of the Income Tax Regulations and further to our memorandum of September 25, 1992. We apologise for the delay in responding.
Paragraph 8503(3)(g) provides that, where pension benefits are determined, in part, by multiplying a member's remuneration by a benefit accrual rate, such rate cannot exceed 2%. It is this rate, and not the overall benefit accrued in the year, which is limited to 2%. The Explanatory Notes are very clear on this point. In the example given therein, a plan with a career average benefit of 2.4% of earnings is prohibited pursuant to paragraph 8503(3)(g), regardless of whether the overall benefit is subject to a 2% limit of final average earnings.
It is our position that, where the total benefit is determined by multiplying remuneration by a rate then deducting an amount not related to remuneration, such rate cannot exceed 2%, regardless of whether the overall benefit is less than 2% of remuneration. Also, it is our position that deductions based on Year's Maximum Pensionable Earnings are not related to remuneration.
In the first paragraph of page 2 of the client's letter, it is implied that an acceptable formula can become an unacceptable one simply by manipulating the format. This is not the case as was indicated in our previous memorandum. The restriction does not simply prevent the benefit formula from containing a rate in excess of 2%, rather it restricts the effective rate applied to remuneration from exceeding 2%.
The Department of Finance is in agreement with our interpretation of this provision.
for DirectorFinancial Industries DivisionRulings Directorate
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© Her Majesty the Queen in Right of Canada, 1993
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© Sa Majesté la Reine du Chef du Canada, 1993
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