1 June 1995 External T.I. 9511895 - TRANSFER OF PENSION AND RETIRING ALLOWANCE

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:

Does paragraph 60(j.1)(v) apply when you transfer from a defined benefit plan to a money purchase RPP.

Position TAKEN:

Yes when actually transferred and number of years would be equal to the amount commuted. It would not apply when only vesting waived.

Reasons FOR POSITION TAKEN:

ITA

						5-951189

XXXXXXXXXX					M.P. Baldwin

Attention: XXXXXXXXXX

June 1, 1995

Dear Sirs:

Re: Section 60(j.1) of the Income Tax Act

This is further to our letter of April 4, 1995 and our telephone conversation of April 7, 1995 (XXXXXXXXXX/Harding) in which you request further clarification regarding the application of section 60(j.1) of the Income Tax Act (the "Act").

In particular, you wanted clarification on whether or not subparagraph 60(j.1)(v) of the Act would apply to deem a new employer to be a related employer where the new employer has a money purchase registered pension plan ("RPP") and the old employer had a defined benefit RPP. The two situations that we considered are:

1) Where the new employer waives the vesting period under the RPP; and

2) Where the employee commutes his pension with the old employer and transfers the commuted value of his/her pension benefits to the money purchase RPP of the new employer.

Subparagraph 60(j.1)(v) of the Act states that "... and for the purposes of this paragraph, 'person related to the employer' includes ... (v) a previous employer of the retiree whose service therewith is recognized in determining the retiree's pension benefits;". As a consequence thereof, it is our opinion that in the situation where the new employer waives the vesting period under the pension plan, the provisions of paragraph 60(j.1)(v) are not met. The waiving of the vesting period only allows the employee to receive full entitlement to pension benefits earlier and in no way increases the amount of pension benefits, to take into account years of service with the former employer, that the employee receives upon retirement.

Subsection 147.3(4) of the Act permits the direct transfer on behalf of an individual of a lump sum amount from a defined benefit provision of an RPP to a money purchase provision of another RPP or to an RRSP, subject to a prescribed limit. This transfer is available only where the amount is transferred in full or partial satisfaction of the member's entitlement to benefits under the defined benefit provision and will be used to provide benefits in respect of the member under the recipient plan. When an amount is transferred pursuant to subsection 147.3(4) of the Act, it is our opinion that the provisions of paragraph of 60(j.1)(v) of the Act will be met and that the number of years of pensionable service that was commuted and transferred to the money purchase RPP will be recognized in the number of years of service in subparagraph 60(j.1)(ii) of the Act. If there is a full commutation of benefits to which the member is entitled, then it is our opinion that the total number of years can be recognized. However, in the situation where only a partial commutation of benefits to which the member is entitled is transferred, then only that proportion of years which relate to the partial commutation may be recognized in determining the number of years of service with the employer or a person related to the employer.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch