27 October 1994 External T.I. 9423385 - GOVT CONTRIBUTIONS TO DOCTORS' RRSP AND RPP

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:

Whether amounts paid by XXXXXXXXXX Government to doctors' RRSP's and registered pension plans and Government-paid disability insurance premiums are "earned income" of the doctors for RRSP deduction limit purposes.

Position TAKEN:

Amounts paid into an RRSP of sole proprietor doctor would be business income of doctor, taxable in doctor's hands and "earned income"; amounts paid into RRSP of a partner in a medical partnership might be partner's income and "earned income" but need to see agreement with Government and partnership agreement. Amounts paid into RPP of incorporated medical practice would be income of the corporation and not "earned income" of the doctor. Disability insurance premiums paid by Government on behalf of sole proprietor would be business income of individual and "earned income"; not sure if partner doctor; where paid on behalf of corporation, would not be "earned income" of the employee doctor.

Reasons FOR POSITION TAKEN:

It's "earned income" only if it is the individual's income; partnership income must be allocated/designated to be partner's income and then "earned income" of the individual - and the contributions/premiums may not even be subject to the partnership agreement; corporate income is not employee's "earned income".

XXXXXXXXXX 942338

Attention: XXXXXXXXXX

October 27, 1994

Dear Sirs:

Re: XXXXXXXXXX Government Contributions to Registered Pension Plan of Incorporated Doctor's Practice or to Unincorporated Doctor's Registered Retirement Savings Plan and Payments of Disability Insurance Premiums

This is further to our telephone conversation of September 23, 1994 (Spice/XXXXXXXXXX), and in reply to your facsimile transmission of September 7, 1994, in which you ask whether the above-noted contributions and payments are "earned income" as defined in subsection 146(1) of the Income Tax Act (the "Act").

We were not provided with a copy of, or details of, the agreement under which the contributions are made and the disability insurance premiums are paid and, therefore, cannot provide a definitive answer to your question. Furthermore, the Department can only provide confirmation of the tax consequences attendant on particular transactions in the context of an advance income tax ruling and then only if such transactions are proposed. Tax advice concerning on-going or completed transactions should be obtained from your local district office. Accordingly, you may wish to provide a copy of the agreement and other pertinent information to that office if you wish to pursue this matter. We are prepared, however, to offer the following general comments.

A. Contributions to Registered Plans

If the amounts paid by the Government represent business or professional income of the doctor who carries on a practice as a sole proprietor, the amounts contributed into the registered retirement savings plan (RRSP) are income of the doctor, taxable in the doctor's hands in the year earned, and would constitute "earned income" in accordance with subparagraph (a)(ii) of the definition of "earned income" in subsection 146(1) of the Act. The determination of "earned income" is relevant for calculating an individual's "RRSP deduction limit" (defined in subsection 146(1) of the Act) which in turn is relevant for ascertaining the allowable deduction under subsection 146(5) of the Act for contributions to an RRSP.

If the practice is not incorporated and the doctor is not a sole proprietor, but rather conducts the medical practice through a partnership, it would be necessary to view the agreement with the Government and the partnership agreement in order to determine if a contribution to the RRSP is income of an individual doctor. We, therefore, cannot provide our opinion on the proper characterization of the RRSP contributions in these circumstances.

Amounts paid into the registered pension plan of an incorporated medical practice are not income of the doctor. A contribution by the Government would in these circumstances be made on behalf of the corporation and would be taxable to the corporation. The payments would constitute employer contributions to the registered pension plan. Employer contributions to a registered pension plan are not a taxable employment benefit to the employee doctor because of subparagraph 6(1)(a)(i) of the Act and do not constitute "earned income" of the doctor.

B. Payments of Disability Insurance Premiums

As with the contributions to an RRSP, if the payment of disability insurance premiums is made by the Government on behalf of a doctor conducting a medical practice as a sole proprietor, the premiums would be income of the doctor and "earned income" for RRSP purposes. Premiums paid in respect of a partner of a medical partnership may or may not be income of the individual doctor, depending on the terms of the agreements. Premiums paid for an employee doctor of an incorporated medical practice would be income of the corporation, and when paid to the insurance company would constitute an employer contribution. Employer contributions for such insurance are not taxable to the employee as an employment benefit because of subparagraph 6(1)(a)(i) of the Act and are not "earned income" to the employee doctor.

We trust the foregoing comments, although not binding on the Department, are helpful.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch