29 March 1993 Administrative Letter 9300586 F - Pension Contribution by Employer on Employee's Behalf

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 29, 1993

Registered Plans Division      Financial Industries S. M. Kotlar      Division Director      D.S. Delorey  957-8953

Attention:  Mike Bennett

XXXXXXXXXX

This is in reply to your memorandum of December 31, 1992.

XXXXXXXXXX

It is your intention to take the administrative approach that such service should not be credited unless it is paid for at the time of acceptance. XXXXXXXXXX

Your concern relates to the fact that the employer is prepared to pay for the service and the employee will have until the end of 1994 to reimburse the employer. In this regard, you ask if an employee would be entitled to a deduction under the Income Tax Act (the "Act") for the amount paid on his behalf by the employer.

Our Comments:

Should the employer contribute an amount to a pension plan on behalf of an employee, it is our view that the employee would be entitled to deduct the amount of the contribution in accordance with the rules set out in subsection 147.2(4) (and 147.2(5) if applicable) of the Act. For example, if the contribution is in respect of a period after 1989, the employee would be allowed to deduct the full amount of the contribution under paragraph 147.2(4)(a) in the year the contribution was made by the employer on his behalf.

One issue to be resolved in situations of this nature is whether or not an amount contributed to a pension plan by the employer on behalf of the employee would be required to be included in the employee's income; i.e., whether the payment by the employer represents an advance or a loan to the employee. This is a question of fact. However, since the subject arrangement calls for reimbursement by the employee of the full amount contributed on his behalf, the payment by the employer would obviously be a loan rather than an advance and no portion thereof would be included in the employee's income where the loan is paid in full by the employee. Otherwise, the facts would dictate whether the unpaid portion of the loan is included in the employee's income or whether section 80 would apply. In this regard, we refer you to paragraph 6 of IT-222R.

for DirectorFinancial Industries DivisionRulings DirectorateHAA 7217-6