28 July 1994 External T.I. 9416465 - CIVILIAN REDUCTION PAYMENTS AS RETIRING ALLOWANCES

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.

Principal Issues:

Several questions concerning 60(j.1) transfer.

Position TAKEN:

Interpretation of provision.

Reasons FOR POSITION TAKEN:

Routine

National Defence
National Defence Headquarters
Ottawa, Ontario 941646
K1A 0K2

Attention: Ms Linda Roos
Staff Officer/Civilian Compensation

July 28, 1994

Dear Sirs:

Re: Payments Under the Civilian Reduction Program (CRP)

This is in reply to your facsimile transmission of June 24, 1994, in which you asked us six questions concerning the transfer of payments received under the CRP to a registered retirement savings plan (RRSP). We provided our answers in a telephone conversation (Spice/Roos) of July 19, 1994, and the following is written confirmation. (The questions have been rephrased and our replies are general in nature and not intended to be a comprehensive discussion of the deduction allowed by paragraph 60(j.1) of the Income Tax Act or of the direct transfer rules in section 147.3 of the Income Tax Act.)

1.Where there is a dispute between the employee and the employer concerning the amount of a retiring allowance that is eligible for a tax deferred transfer to an RRSP, are we correct in insisting that the employee obtain written confirmation from Revenue Canada as to the maximum amount which may be transferred?

ANSWER

There is no requirement that the Department confirm an amount of the retiring allowance which is eligible for a transfer to the employee's RRSP. The Department will assist any taxpayer in an interpretation of the Income Tax Act provisions respecting the transfer, and in situations involving an actual fact situation either the employee or the employer may contact the local district taxation office for such assistance. The Rulings Directorate will, for a fee, provide an advance income tax ruling concerning the tax consequences of proposed transactions, but will not certify the actual amount of the retiring allowance eligible for the tax-deferred transfer to the RRSP. For more information concerning advance income tax ruling requests, please refer to the enclosed Information Circular 70-6R2 and Special Release thereto.

2.May an employee transfer money into a spousal RRSP?

ANSWER

There is no special deduction for the transfer to a spousal RRSP of lump sum amounts received on termination of employment. Any such amount transferred would be deductible to the extent that it does not exceed the employee's RRSP deduction limit for the year. See Chapter 3 of the enclosed 1993 RRSP's and Other Registered Plans for Retirement Guide for more information concerning contributions to an RRSP, including spousal RRSP's.

3.In calculating the number of years employed with a "person related to the employer" we include service with a prior employer which can be bought back under the Public Service Superannuation Act (PSSA). The service does not actually have to be bought back to be counted. Is there any requirement that such related service be continuous or that it be separated by no more than a specific number of years?

ANSWER

A prior employer is a related person if service with the prior employer is recognized under the PSSA. Therefore, the service actually has to be bought back for the prior service to be counted. Alternatively, the prior employer may be related in fact as in the case of the employer of the military and the employer of the federal Public Service.

There is no requirement that the service with two or more related employers (whether related in fact or because prior service is recognized under the PSSA) be continuous and there is no restriction on the length of a break between periods of service with related employers.

4.Where an employee has accrued 15 years of pension benefits under the PSSA and receives a lump sum under the CRP of $40,000 and a return of pension contributions of $20,000, how much of the $60,000 can be transferred to an RRSP?

ANSWER

If at the time the employee receives a retiring allowance, the employer contributions to the PSSA are still vested, the amount of the retiring allowance eligible for the transfer to the RRSP would be $30,000 (15 x $2000). The return of PSSA pension contributions is eligible for a direct transfer to an RRSP if 1) the amount directly transferred is a return of contributions the employee made before 1991 and any interest in respect of those contributions, or 2) it is a lump sum transferred in full or partial satisfaction of benefits to which the employee is entitled, either absolutely or contingently, under the PSSA, and does not exceed a prescribed amount. The actual amount that may be transferred should be verified by the pension plan administrator, the Department of Public Works and Government Services. Form T2151 ("Record of Direct Transfer of a "Single Amount" (Subsection 147(19) or Section 147.3)") may be used (copy enclosed for your information).

If at the time the employee receives a retiring allowance, the employer contributions to the PSSA are no longer vested because the employee has already received a return of the employee contributions and forfeited rights to the employer contributions, the amount eligible for transfer to the RRSP would be increased by $1500 for each year or part year of employment prior to 1989.

Question 5

Is "Public Service" defined in the Income Tax Act?

ANSWER

The Income Tax Act does not include a definition of "Public Service". You advised in our telephone conversation that your concern relates to the question of whether certain federal Crown corporations, boards, agencies and commissions can be considered related to your department for purposes of calculating the number of years of employment. Generally speaking, an employee of an entity which is an agent of Her Majesty in Right of Canada is considered to have the same employer as employees of the departments in the Public Service; the Crown corporation, board, agency or commission should be able to confirm if it is an agent of Her Majesty in Right of Canada. Basically, you must establish that the prior service was considered to be employment with the Treasury Board of Canada in order to consider it related employment for the purposes of the tax-deferred transfer of the retiring allowance to an RRSP. Alternatively, and as noted in our ANSWER to Question 3, if the PSSA recognizes the prior service for purposes of pension benefit accruals and the prior service is bought back, that service is deemed to be service with a related person and it is irrelevant whether the previous employer is part of the Federal Government.

Question 6

What is meant by "minimum alternative tax"?

ANSWER

Enclosed for your information is a copy of an excerpt from the 1993 Federal and Ontario T1 Return and Guide which discusses the minimum tax and a copy of Form T691 ("Calculation of Minimum Tax").

We trust that the foregoing answers, although not binding on the Department, are helpful. If you require additional copies of the Information Circular, forms or the Guides referred to in this letter, they may be obtained from the local district taxation office.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate
Policy & Legislation Branch