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.
June 8, 1993
Winnipeg District Office |
Head Office |
J. Purda |
Financial Industries Division |
Director |
D.S. Delorey (613) 957-8953 |
Attention: S. Lillie
Client Assistance
XXXXXXXXXX U. S. Pension Plan
This is in reply to your FAX transmission of May 5, 1993 concerning a lump-sum amount received out of a U.S. pension plan.
More particularly, one of your clients received a lump-sum amount of $ XXXXXXXXXX a U.S. pension plan. The client has always been resident in Canada and the related services were rendered in Canada. You asked if all or a portion of the lump-sum payment can be rolled into a registered retirement savings plan ("RRSP").
Our Comments:
The lump-sum payment does not qualify for rollover to an RRSP. The reason being that a lump-sum amount received out of a foreign pension plan may be rolled over to an RRSP only where the conditions of subparagraph 60(j)(i) of the Income Tax Act (the "Act") are met. One of the conditions in that subparagraph is that the payment must be attributable to services rendered while not resident in Canada. As stated above, such is not the case. Another condition in that subparagraph is that the payment must be included in income under subparagraph 56(1)(a)(i) of the Act and, as indicated below, such is also not the case.
For Canadian income tax purposes, a payment out of a foreign pension plan will be subject to either the retirement compensation arrangement ("RCA") rules or the employee benefit plan ("EBP") rules. Both of these terms are defined in subsection 248(1) of the Act. Depending on when the arrangement was entered into, the EBP rules could apply to part of the payment and the RCA rules to the other part paid out of a "statutory arrangement", within the meaning given to that term in the coming-into-force provisions of the RCA definition.
Retirement Compensation Arrangement ("RCA")
A payment received by a resident of Canada out of or under an RCA is included in income under paragraph 56(1)(x) or (z) of the Act, depending on the circumstances. If the payment is taxable under paragraph 56(1)(x), a rollover to a registered retirement savings plan ("RRSP") is available to the extent provided in paragraph 60(j.1) of the Act, but only where the payment represents a retiring allowance. Accordingly, a rollover to an RRSP is not available for a pension payment received out of or under an RCA.
More often than not, however, a payment out of a foreign pension plan will not be subject to the RCA rules because of the exclusion in paragraph (l) of the RCA definition. Paragraph (l) excludes a plan or arrangement (other than an athlete's plan) that is maintained primarily for the benefit of non-residents in respect of services rendered outside Canada. However, the paragraph (l) exclusion will not apply to the extent that subsection 207.6(5) of the Act deems the foreign plan to be a "resident's arrangement". On the other hand, subsection 207.6(5) will not prevent the exclusion from applying where the plan is a prescribed plan or arrangement described in paragraph 6802(e) of the Income Tax Regulations (the "Regulations"). As stated in the Department of Finance's Information Release No. 92-014 dated February 14, 1992, the automatic exemption in paragraph 6802(e) of the Regulations applies to contributions made before 1992. For contributions made to the foreign plan after 1991, the employer must elect not to have the RCA rules apply.
If the RCA rules apply, a Part X1.3 refundable tax liability may exist with respect to the client's participation in the Plan by reason of subsection 207.7(1) of the Act. A liability may also exist under subsection 227(8.2) of the Act by reason of the failure to withhold under paragraph 153(1)(p) of the Act. If the lump-sum amount received by the client represents his total interest in the Plan, the refundable tax computation at the end of 1992 under subsection 207.5(1) of the Act may result in a nil amount insofar as he is concerned. However, there may be other clients who participate in the Plan and whose circumstances are similar to the client in question. Also, if the lump-sum payment represents the client's total interest in the Plan, he would not have a pension credit under the Plan for any year by reason of paragraph 8308.1(2)(a) and subparagraph 8308.1(2)(b)(iii) of the Draft Legislation announced by the Department of Finance in the Special Release issued on December 18, 1992.
Employee Benefit Plan ("EBP")
Where the RCA rules do not apply to a payment out of a foreign pension plan, the EBP rules will apply to the payment. Where the exclusion in subparagraph 6(1)(g)(iii) of the Act does not apply, an amount received out of an EBP by a resident of Canada is included in income under paragraph 6(1)(g) of the Act to the extent not excluded under subparagraphs 6(1)(g)(i) and (ii), and a rollover to an RRSP is not available. This would be the case with your client if the EBP rules apply to the Plan.
Should there be other Canadian residents who receive a lump-sum payment out of the Plan and the situation is such that the exception in subparagraph 6(1)(g)(iii) does apply; i.e., the pension payment is attributable to services rendered in a period throughout which the recipient was not resident in Canada, the payment would be included in income under subparagraph 56(1)(a)(i) of the Act. The payment could thus be rolled over to an RRSP under subparagraph 60(j)(i) of the Act to the extent it was not deducted by reason of subparagraph 110(1)(f)(i) of the Act.
Please contact the writer should you require any further assistance in this matter.
for DirectorFinancial Industries DivisionRulings Directorate
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