5 August 1993 External T.I. 9319965 F - Grandfathered Employee Benefit Plan

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.

XXXXXXXXX

Attention:  XXXXXXXXXX

Dear Sirs:

RE:  Advanced Income Tax Ruling - XXXXXXXXXX

This is in reply to your letter of July 8, 1993, in which you ask us to rule concerning XXXXXXXXXX

As stated in Information Circular 70-6R2 advance rulings will be given only on a proposed transaction and to permit a taxpayer to decide to undertake a particular course of action. We are unable to provide rulings on alternative transactions. We therefore decline to rule in the circumstances and your deposit will be returned under separate cover. We can offer the following general comments, however, which we hope will be of assistance.

You are concerned with the transitional rules governing the retirement compensation arrangement definition and subsection 207.6(4) of the Income Tax Act (the "Act").

The transitional rules apply to exclude a plan from the definition of a "retirement compensation arrangement" as set out in subsection 248(1) of the Act if the plan was in existence before October 9, 1986. If the terms of such a plan are "materially altered", however, another plan is deemed to be established (a "statutory arrangement") and contributions made to the plan from the time of the alteration (or January 1, 1988, if the alteration occurs later) are considered to have been made to a retirement compensation arrangement ("RCA"). If the change in investments or custodian which you are contemplating can be considered a "material alteration" in the terms of your Plan, then the total amount of the new investments or all the property transferred to the new custodian would be considered a contribution to an RCA.

We have reviewed the terms of your Plan and in our view the manner of investing the funds of the Plan is not a material term of the Plan; thus, any change in the method of investing would not amount to a material alteration in the terms of the Plan so as to give rise to a "statutory arrangement" as discussed above.

With respect to the change in custodian, if such a change is permitted under the current terms of the Plan then the change itself is not a material alteration in the terms of the Plan.

Subsection 207.6(4) of the Act states that if an employee benefit plan becomes an RCA because the custodian changes, ceases to carry on business in Canada, or loses its licence or authorization to carry on business as a trustee in Canada, then the fair market value of all property in the plan is deemed to be contributed to the RCA immediately after that time.

It is our position that if the terms of the plan permit a change in the custodian and the new custodian is a resident of Canada, then subsection 207.6(4) of the Act does not apply.

The foregoing comments are an expression of opinion only and are not binding on the Department.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate