27 September 1993 External T.I. 9318865 F - HAA7200-4 Foreign Pension Arrangements PA Credits

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.

XXXXXXXXXX 

Attention:  XXXXXXXXXX

Dear Sirs:

RE:  Foreign Pension Arrangements

This is in reply to your letter of June 29, 1993 wherein you requested a ruling concerning the participation of Canadian resident employees of a Canadian resident employer in a foreign pension plan.

Please note that an advance income tax ruling on the tax implications can only be given by this Directorate in respect of a proposed transaction where it is the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2. We can, however, provide the following general comments which may or may not be applicable to any particular situation.

As you are aware, the legislation pertaining to participation of Canadian residents in foreign pension plans is presently the subject matter of draft legislative and regulatory amendments released on December 18, 1992 by the Department of Finance. These proposals if enacted will apply a number of revisions on a retroactive basis while others will be introduced over a period of years. You must, therefore, review the proposals to determine their applicability to your circumstances at any particular time.

With respect to the contribution of amounts to a foreign plan by a foreign entity where no amount is charged against income by the Canadian employer, we draw your attention to draft section 207.6(5.1) of the Income Tax Act (the "Act") at page 4 of the release. It states:

     "it should be noted that resident's contributions may include, in addition to contributions made by an employer in respect of its employees, contributions made by anyone else (including the employees) in respect of those employees. For example, contributions made to a foreign plan by a foreign parent corporation in respect of employees of its Canadian subsidiary may be residents' contributions."

Subsection 6(1)(a)(ii) of the Act applies to exclude from inclusion in income under that subsection any benefit under a retirement compensation arrangement (an "RCA").

Under the proposed amendments, the RCA rules apply to contributions to a foreign plan which meet the definition of "residents' contributions" in subsection 207.6(5.1) of the Act. When a residents' contribution is made, subsection 207.6(5) deems the plan to be an RCA in respect of that and any other residents' contributions made to it and any income derived from those contributions. The provision also deems the plan to be a separate plan independent of the foreign plan in respect of those contributions and that income.

If no contributions are made to a foreign plan an RCA will not arise.

The Department has not yet determined for the purposes of the draft provisions whether the use of a pension surplus to fund contributions that are otherwise required would be residents' contributions. The Department has, however, stated, in relation to the application of other provisions of the Act, that the use of a surplus to provide a contribution holiday to a contributor would be treated as a contribution to a plan. However, it should be noted that whether a contribution is made that is not a resident's contribution or no contribution is made, the draft amendments to the provisions of sections 8301, 8303 and 8308.1 of the Income Tax Regulations will apply to determine a pension credit or a past service pension adjustment, as the case may be, for a Canadian resident employee.

As discussed during previous telephone conversations with you (XXXXXXXXXX/Douglas) we are not able to provide you with any general comments on the desired out come of your proposal. Nevertheless, we hope the above comments will be of assistance to you.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate