2 November 1994 Ministerial Letter 9427918 - DIRECT TRANSFER FROM RPP TO RRIF

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 a lump sum payment qualifies for tax-free transfer under 147.3(4).

Position TAKEN:

No

Reasons FOR POSITION TAKEN:

It is not a "single amount" but rather a catch-up lump sum for a retroactive increase in periodic pension payments. See 940329 for example.

			November 2, 1993

	Head Office	Head Office
	Client Assistance Directorate	Rulings Directorate
	Hélène Beauchemin	P. Spice
	Director General	(613) 957-8953
	Attention:  Wayne Warren
	              Correspondence Section	942791

Minister's Mail Insert for Docket # 94-1533D
Client's Name: XXXXXXXXXX
Topic: Direct Transfer Pursuant to Subsection 147.3(4) of the Income Tax Act

This is in reply to your memorandum received October 31, 1994, in which you ask us to provide an insert for the above-noted correspondence. You provided copies of the client's letters and attachments and copies of the Department's previous correspondence with the client. The insert follows.

The Income Tax Act (the "Act") provides that an amount may be transferred from a defined benefit pension plan to a registered retirement income fund on a tax-free basis if certain conditions are met. One of these conditions is that the amount must be a "single amount" and this term is defined in the Act to mean an amount that is not part of a series of periodic payments. Another condition that must be satisfied for the tax-free transfer to take place is that, if the amount is a "single amount", it cannot exceed a prescribed amount. The amount which you wish to transfer to your registered retirement income fund fails to meet both of these conditions since it is not a "single amount", and even if it were, it exceeds the prescribed amount.

To explain, the lump sum you are receiving represents a payment in arrears of the retroactive increase in the periodic pension payments you have been receiving since your retirement on June 27, 1990, to the date on which you started to receive your increased periodic pension. A "single amount" on the other hand represents a full or partial commutation of benefits to which a member of a pension plan is entitled. A person who is in receipt of a periodic pension and receives a partial commutation payment would experience a decrease in future periodic payments because the lump sum payment would compensate the recipient for giving up benefits under the pension plan.

With respect to the prescribed amount, section 8517 of the Income Tax Regulations defines this amount as the product of the amount of the benefits commuted (i.e. the annual amount by which the recipient's benefits under the pension plan are reduced as a result of the lump sum payment) multiplied by the present value factor that corresponds to the age of the recipient at the time of the transfer determined by reference to the table in the section. For persons who are older than 71, the present value factor is zero. As a result, no one over the age of 71 can defer tax on a lump sum commutation payment out of a defined benefit pension plan by transferring it to a registered retirement income fund or to any other type of registered retirement plan.

We trust this explanation is satisfactory for purposes of your reply to the client.

R.S. Biscaro
Acting Director General
Rulings Directorate
Policy and Legislation Branch