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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
5-932774
XXXXXXXXXX W.C. Harding
(613) 957-8953
October 25, 1993
Dear Sir:
Re: Repayment of Pension Income Amounts
This is in reply to your letters of September 28 and 29 1993, in which you asked for clarification of the deductibility of your proposed repayment of pension benefits.
As discussed during the telephone conversation of October 15 between yourself and Mr Wayne Harding of our office, an advance income tax ruling can not be provided in respect of this matter on the basis of the information provided. We can, however, offer the following comments.
The Income Tax Act (the "Act") has recently been amended to allow a deduction for the repayment of benefits received out of a pension plan which were previously included in taxable income if the repayment is made under a prescribed statutory provision. To date, no specific provisions have been prescribed. However, it is expected that section 39(7) of the Public Superannuation Act, and similar provisions under the Canadian Forces Superannuation Act, the Members of Parliament Retirement Allowances Act and the RCMP Superannuation Act will be prescribed and the following comments are based on the assumption that those provisions are in fact so prescribed.
It is our understanding that you wish to make an election in 1993 or a subsequent year, to repay benefits which you received in the years 1989 through 1993 in accordance with one of these provisions and you wish to know the tax consequences of such an election. We also understand that interest will be payable to the pension plan in respect of the repayment of these benefits.
If you repay any benefits received in 1989, the repayments together with any interest on them will be deductible. However, the amount you may deduct in any year is limited to the lesser of the amount repaid and $3,500 minus any other contributions you make in the year to any pension plan. Any amount in excess of this annual limit may, however, be carried forward and deducted in future years under the same rules. For example, if in 1993, you were to repay $6,000 of your 1989 pension benefits together with $1,000 interest and you also made regular contributions of $3,000 to your current pension plan, you could deduct $500 in 1993 in respect of the repayment ($3,500 - $3,000) and carry forward $6,500. The amount carried forward could then be deducted in 1994 or any subsequent year within the same limitations until it was fully deducted.
If any repayments are made in instalments over a number of years, the deduction allowed in any year is also limited to the accumulated amount, including interest, paid up to that time.
If you repay any benefits received in 1990 or any subsequent year the full amount repaid, together with any interest thereon, may be deducted in the year it is repaid. There is no annual limitation to the deduction. However, no amounts may be carried forward and deducted in a future year. Therefore if an amount is repaid in a year which exceeds your taxable income otherwise determined for that year, the deductibility of the excess will be lost.
If you are repaying both 1989 and 1990 benefits it will be necessary for you to keep track of how much interest is being made in respect of each type of benefit. Additionally, if you make the repayments in instalments, you will have to keep track of which benefits are being repaid with each instalment. In our example, if you were to pay $7,000 in 1989 benefits and $60,000 in post 1989 benefits through $8,400 annual instalments over 10 years, you would have to determine how much of each payment was for 1989 benefits and interest, and how much was for the 1990 through 1993 benefits and interest. As a general rule, it is normal practice to first apply payments to the payment of interest accrued to the time a payment is being made and then to repay the oldest benefit. In our example, if the first year's interest was $2,000, about $200 would be paid as interest on the 1989 benefit, $1,800 would be paid as interest on the 1990 through 1993 benefits and $6,400 would be paid as a repayment of the 1989 benefits.
As was discussed during our phone conversation, we can not determine what the deductions would be in your particular case because they will depend on your decisions and your income over the next several years. We do, however, hope that we have been of assistance to you in this matter.
Your deposit will be returned under separate cover.
Yours truly,
for Director Financial Industries Division Rulings Directorate
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1993
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1993