6 January 1994 Internal T.I. 9334617 - PENSION PLAN - RETIREMENT COMPENSATION ARRANGEMENT

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.

RULINGS DIRECTORATE
CORRESPONDENCE SUMMARY

Principal Issues:

Annuuity commutation on death of annuitant

Position TAKEN:

RCA, or EBP

Reasons FOR POSITION TAKEN:

Meets definition in Act

	                                     	January 6, 1994

Vancouver District Office Head Office
P. E. Seguin Rulings Directorate
(613) 957-8953
Attention: Phil Oulton
Section 471-23
7-933461

XXXXXXXXXX

This is in reply to your memorandum of November 23, 1993 concerning amounts received by
XXXXXXXXXX

The facts as we understand them are as follows:

1.The payments are made from a U. S. source.

XXXXXXXXXX

Our Comments

Our following comments are based on our understanding of the facts as set out above. You may wish to confirm with XXXXXXXXXX whether or not these are indeed the facts.

A.In our opinion, the better view is that the payments are superannuation or pension benefits made out of or under a pension plan and are taxable in full. The following comments explain the provisions of the Income Tax Act (the "Act") applicable generally to foreign pension plans and to the payments received by XXXXXXXXXX

B.An unregistered foreign pension plan is either an employee benefit plan ("EBP"), a retirement compensation arrangement ("RCA"), or a combined "existing arrangement" and "statutory arrangement" described in the coming-into-force provisions of the RCA definition in subsection 248(1) of the Act. Normally, a superannuation or pension benefit is included in income under subparagraph 56(1)(a)(i) of the Act. However, as indicated in paragraph 3 of IT-499, an exception to this rule is where the superannuation or pension benefit is received out of an EBP or an RCA. Accordingly, a payment out of the Plan is subject to either the RCA rules or the EBP rules, or both. The RCA rules will apply if

(i) the (l) exception in the RCA definition is not met, or

(ii) if the (l) exception is met, the resident's arrangement rules in subsection 207.6(5) of the Act apply.

C.In your memorandum, you mention that the Plan does not appear to be an RCA because "the employer who made the contributions to the Plan is not non-resident pursuant to Regulation 6802(e)(ii)". However, paragraph 6802(e) of the Regulations is a provision that exempts from the RCA rules certain plans that would otherwise be subject to those rules by reason of the "resident's arrangement" rules in subsection 207.6(5) of the Act. Accordingly, since all the requirements of paragraph 6802(e) are not met, the rules in subsection 207.6(5) will apply provided they otherwise would apply. Based on the limited information available, it would appear that the (l) exception in the RCA definition applies but that the RCA rules nevertheless apply to the Plan because of subsection 207.6(5). However, there are not sufficient facts available to enable us to determine definitely whether or not the (l) exception in the RCA definition applies, or whether or not the rules in subsection 207.6(5) of the Act apply. You will therefore have to make this determination. The tax implications, depending on whether or not the RCA rules apply, are as follows:

(i)If the RCA rules do not apply to the payments received by XXXXXXXXXX out of the Plan, the payments will be taxable in full under paragraph 6(1)(g) of the Act, as none of the exceptions in any of subparagraphs 6(1)(g)(i), (ii) or (iii) apply.

(ii)If the RCA rules do apply and the Plan was not in place on October 8, 1986, or was not established after October 8, 1986 pursuant to an agreement between XXXXXXXXXX entered into before October 9, 1986,

(a) the payments received by XXXXXXXXXX are taxable in full under paragraph 56(1)(z) of the Act, and

(b) pursuant to paragraph 153(1)(p) of the Act and subsection 103(7) of the Regulations, XXXXXXXXXX should have withheld, on account of the tax liability under section 207.2 of the Act, 50% of the contributions made to the Plan.

(iii)If the RCA rules do apply and the Plan was in place on October 8, 1986, or was established after October 8, 1986 pursuant to an agreement between XXXXXXXXXX entered into before October 9, 1986, the Plan will continue to be governed by the EBP rules with respect to contributions to the Plan up to December 31, 1987 by reason of the coming-into-force provisions of the RCA definition, provided no material alterations were made to the Plan after October 8, 1986. Accordingly, if such is the case,

(a) the part of the payment received by XXXXXXXXXX that is attributable to contributions made to the Plan by XXXXXXXXXX before 1988, plus any growth thereon, is taxable in full under paragraph 6(1)(g) of the Act, as none of the exceptions in any of subparagraphs 6(1)(g)(i), (ii) or (iii) apply,

(b) the part of the payment received by XXXXXXXXXX that is attributable to contributions made to the Plan by XXXXXXXXXX after 1987, plus any grow thereon, is taxable in full under paragraph 56(1)(z) of the Act, and

(c) pursuant to paragraph 153(1)(p) of the Act and subsection 103(7) of the Regulations, XXXXXXXXXX should have withheld, on account of the tax liability under section 207.2 of the Act, 50% of the contributions made to the Plan after 1987.

D.With respect to C(ii)(b) and (iii)(c) above, you may wish to consult with Mr. Bill Mizuik (613-957-9102) of the Head Office Assessment of Returns Directorate as to what action, if any, to take in this regard and with regard to the returns required to be filed under section 207.2. If it is decided that no action is to be taken in these regards, it may not be necessary to make the distinction between what portion of the payments received by XXXXXXXXXX is subject to the EBP rules and what portion is subject to the RCA rules.

E.We agree with your comment that no part of the payments received by XXXXXXXXXX would constitute a "death benefit" as defined in subsection 248(1) of the Act. As stated in A above, it is our view that the payments received by XXXXXXXXXX are superannuation or pension benefits and, as explained in paragraph 6 of IT-301, no part of such a payment can qualify as a death benefit.

F.By reason of Article XVIII of the Canada-U.S. Income Tax Convention (1980), XXXXXXXXXX can deduct under subparagraph 110(1)(f)(i) of the Act any portion of the payments out of the Plan that would be excluded from taxable income in the U.S. were XXXXXXXXXX a resident thereof. We assume, however, since according to XXXXXXXXXX all the contributions to the Plan were made by XXXXXXXXXX that no portion of the payments would have been excluded from taxation in the U.S. were XXXXXXXXXX a resident thereof. XXXXXXXXXX may be able to answer this question for you.

Please contact us should you require further assistance. Your file is returned herewith.

for Director
Financial Industries Division
Rulings Directorate