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: Unfunded supplementary pension ("USP")
Position: It is not a SDA or an RCA. Amounts received out of the USP is pension income.
Reasons:Routine
3-953306
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1996
Dear Sirs:
Re: Advanced Income Tax Ruling
XXXXXXXXXX
This is in reply to your letter dated XXXXXXXXXX, as supplemented by your letter dated XXXXXXXXXX, wherein you requested certain advance income tax rulings (the "Rulings") on behalf of XXXXXXXXXX
You have advised us that to the best of your knowledge and that of XXXXXXXXXX none of the issues involved herein are being considered by a Tax Services Office or Taxation Centre of Revenue Canada in connection with a tax return already filed and that none of the issues are under objection or appeal.
Facts
XXXXXXXXXX is located in XXXXXXXXXX.
XXXXXXXXXX tax account number with Revenue Canada (the "Department") is XXXXXXXXXX.
XXXXXXXXXX Tax Services Office and Taxation Centre is XXXXXXXXXX.
XXXXXXXXXX presently maintains a registered defined benefit pension plan (the "Plan") for its staff XXXXXXXXXX (the "Employees") which provides a retirement income of XXXXXXXXXX.
Employees contribute each year XXXXXXXXXX% of the first $XXXXXXXXXX of their earnings and XXXXXXXXXX% of earnings over $XXXXXXXXXX up to the salary level that corresponds to the maximum permitted pension. Currently this salary level is $XXXXXXXXXX.
XXXXXXXXXX makes matching contributions and, in addition, has the obligation to make "overmatching" contributions to the extent that this is necessary in order to meet benefit costs which are over and above those that can be supported by the matching contributions and any allocation of surplus funds within the plan.
Proposed Transactions
XXXXXXXXXX proposes to establish a supplemental arrangement (the "Arrangement") effective from XXXXXXXXXX (the "Effective Date") which will have the following characteristics.
Each Employee who contributes to the Plan at any time after the Effective Date will become a member of the Arrangement (a "Member") as of the first day of the month in the calendar year in which the Member's annual salary exceeds $XXXXXXXXXX or XXXXXXXXXX of the Money Purchase Limit (as that term is defined at subsection 147.1(1) of the Income Tax Act ( the "Act")) for the year, if greater.
Each Member shall have an account to which credits will be credited to the Member on XXXXXXXXXX basis.
Subject to the limitation below, the amount of the credits for XXXXXXXXXX to a Member will be XXXXXXXXXX% of the amount by which the Member's annual salary exceeds $XXXXXXXXXX or XXXXXXXXXX of the Money Purchase Limit for the year, if greater.
No credit will be provided in respect of any amount by which the Member"s annual salary exceeds $XXXXXXXXXX or XXXXXXXXXX of the Money Purchase Limit.
No credit will be made to a Member's account for periods subsequent to the Member's retirement, termination or death.
The Member's accounts under the Arrangement will be a general liability to XXXXXXXXXX.
At the time the Member retires, terminates employment or dies, the Member's account will be reduced by the amount of any refund of excess employee contributions plus interest the Member receives from the Plan due to XXXXXXXXXX commitment to make overmatching contributions to the Plan equal to the refund received by the Member.
The Member's account will be maintained until all payments to which the Member is entitled have been made.
XXXXXXXXXX during the existence of the Arrangement, XXXXXXXXXX proposes to set aside and invest a sum of money equal to the aggregate amounts credited XXXXXXXXXX to the Arrangement.
The earnings realized on the total funds set aside and invested will be notionally credited to the members' accounts.
These investments will continue to belong to XXXXXXXXXX and the Members will not have any direct claims against these assets.
The investments will not be held in trust for the benefit of the Members of the Arrangement and they will not be set aside in the name of any particular Member.
The investments will be available for the general creditors of XXXXXXXXXX.
No entitlement will be payable under the Arrangement before the earliest of retirement, date of termination of employment or date of death.
XXXXXXXXXX will pay an amount equal to the balance in the Member's account calculated in XXXXXXXXXX instalments over a period of XXXXXXXXXX on the date of the first payment to the Member or the person designated by the Member (the "Beneficiary").
A Member, or if the Member dies before retirement or termination, the Beneficiary, may elect:
to receive the instalments in XXXXXXXXXX instalments over a period of fewer than XXXXXXXXXX or in a lump sum, the first payment being made the XXXXXXXXXX following the Members retirement, termination or death;
to defer the lump sum payment or commencement of the XXXXXXXXXX instalments to a date not later than the XXXXXXXXXX following the Member's XXXXXXXXXX birthday (in the case of a deceased Member, assuming that the Member survived until such date);
and succeeding XXXXXXXXXX instalments will be made on the XXXXXXXXXX.
The earliest commencement date for the XXXXXXXXXX instalments will be when the Member attains the age of XXXXXXXXXX.
Each Member will be entitled to an annual statement which will inform the Member of the status of the Member's participation in the Arrangement.
The Arrangement will be administered by XXXXXXXXXX.
Purpose of the Proposed Transactions
The purpose of the proposed transactions is to provide a process by which XXXXXXXXXX can provide a more adequate level of retirement income to those of its employees whose pension entitlement would otherwise be limited to a level which is not consistent with their rate of earnings with XXXXXXXXXX. To this end, it is proposed that XXXXXXXXXX will, from time to time, set aside and invest certain sums of money for this purpose.
Rulings
Provided that the above statements of facts and proposed transactions are accurate and constitute complete disclosure of all the relevant facts and proposed transactions and that the proposed transactions are carried out as set out above we rule as follows:
The Supplemental Arrangement will not constitute a salary deferral arrangement as that term is defined in Subsection 248(1) of the Income Tax Act (the "Act").
The Supplemental Arrangement will not constitute a retirement compensation arrangement as that term is defined in Subsection 248(1) of the Act and consequently the provisions of Part XI.3 of the Act will not be applicable to the Supplemental Arrangement.
Subsection 12(4) of the Act will not apply to the individual Members of the Supplemental Arrangement to require any amount to be included in computing the Member's income for a year as interest with respect to the balance in the Member's account.
All payments made by XXXXXXXXXX to a Member or his or her spouse, as the case may be, under the Supplemental Arrangement, will be included in the income of the recipient in the year it is received as a superannuation or pension benefit pursuant to subparagraph 56(1)(a)(i) of the Act.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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