24 January 1995 External T.I. 9425915 - TRANSFER UK PENSION TO RRSP

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:rules and proceedures for transfer of UK pension to an RRSP.

Position TAKEN:general comments

Reasons FOR POSITION:routine application of rules

XXXXXXXXXX 5-942591

Attention: XXXXXXXXXX

January 24, 1995

Dear Sirs:

Re: Transfer of Pension Benefits From a UK Pension Plan

This is in reply to your facsimile dated October 7, 1994, in which you requested our assistance with respect to a proposed transfer on behalf of an employee, of pension benefits from a United Kingdom pension plan to your company's registered retirement savings plan ("RRSP").

Written confirmation of the tax implications of proposed transactions can only be provided by this Directorate where the transactions are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2. A copy of that circular is enclosed. Accordingly, we are unable to reply specifically to your concerns at this time. Nevertheless, we can provide the following general information which you may find to be of assistance.

The U.K. authority's requirements for the transfer of pension benefits appear to relate more to the transfer of amounts to a registered pension plan then to a transfer of benefits to an RRSP. Accordingly, it may be difficult for your plan to meet the conditions imposed. Unfortunately, we can not assist you in determining this because it may only be done on the basis of the terms of your RRSP. In the alternative, we suggest you discuss this with your RRSP administrator.

Whether the UK authority is willing to treat payments out of a group RRSP as pension payments for the purposes of a transfer will be at its discretion. However we note that paragraph 3 of article 17 of the Canada U.K. Income Tax Convention does provide that the term "pension" includes any payment under a retirement plan except any payment made in settlement of all future entitlements under such a plan. The Treaty may on the other hand have little or no relevance with respect to UK pension legislation.

An RSP does not have to provide for the acceptance of a transfer payment from a foreign plan in order to be registered nor does it have to prohibit such transfers. Accordingly, you will have to review the terms of your plan to determine if it can accept transfers or can be amended to do so. In either event the Income Tax Act does provide that transfers of payments out of foreign pensions can be made free of Canadian taxation in many cases as discussed below.

When any payment of pension benefits is made to a person resident in Canada at the time of the transfer or payment, the Canadian income tax implications can vary depending on whether the person was resident in Canada at the time the pensionable services were rendered and whether the pension plan is maintained primarily in respect of a non-resident's service rendered while outside Canada.

Where a plan is maintained primarily for the benefit of non-residents in respect of services rendered outside Canada, it will be an employee benefit plan (an "EBP") except where it is a "resident's arrangement" as defined in subsection 207.6(5) of the Act. In simple terms, a resident's arrangement is a foreign pension plan used to fund the pension of Canadian residents for services provided in Canada. In such cases the arrangement may be treated as a retirement compensation arrangement or "RCA". There are, however, exceptions to this treatment and an employer can elect to not have the plan treated as an RCA if it meets certain conditions. Information on RCAs can be obtained from your local district taxation office.

Where a foreign pension plan is an EBP, an amount paid out of the plan to an individual who is resident in Canada is taxable whether the amount is transferred directly to an RRSP on the individual's behalf, paid to the individual in one lump-sum or paid periodically in the form of a pension. The taxation is as follows:

To the extent the amount is attributable to services rendered by the individual in a period other than a period throughout which the individual was not resident in Canada, the amount must be included in income under paragraph 6(1)(g) of the Act to the extent that it exceeds a return of amounts contributed to the plan by the individual.

To the extent that the amount is attributable to services rendered by the individual in a period throughout which the individual was not resident in Canada and subparagraph 6(1)(g)(iii) of the Act applies, the amount must be included in income under subparagraph 56(1)(a)(i) of the Act as pension income.

An amount taxed under paragraph 6(1)(g) of the Act as discussed in 5.a. above, is not eligible for rollover to an RRSP but will form part of the employee's earned income on which normal RRSP contributions can be made.

An amount taxed under subparagraph 56(1)(a)(i) of the Act as discussed in 5.b. above may be rolled over to an RRSP if it is received in the form of a lump-sum amount and is not part of a series of periodic payments. A deduction with respect to such a rollover is available under paragraph 60(j) of the Act and may be effected by transferring the lump-sum amount directly from the foreign plan or by having it paid first to the employee and then to the RRSP.

Under some income tax treaties (but not the Canada - U.K treaty) a deduction may be available under paragraph 110(1)(f) of the Act for some pension payments. A tax free transfer of an amount under paragraph 60(j) of the Act is not available if a deduction has been made by a recipient for the same amount.

If the foreign pension plan is an RCA as described above, any amount paid to an individual who is resident in Canada would be included in the individual's income under paragraph 56(1)(x), (y) or (z), depending upon the circumstances. No amount of an RCA pension payment may be rolled over to an RRSP.

Tax withholdings could be required on a foreign pension payment by a foreign tax authority. If there is such a withholding, the individual can normally claim a foreign tax credit on his or her Canadian tax return in respect of it to the extent permitted under section 126 of the Act.

The above comments reflect an expression of opinion only and are not binding on the Department as explained in paragraph 21 of the enclosed Circular. However, we trust that they will be of assistance.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch