5 March 1996 Internal T.I. 9604706 - INTERPRETATION OF 8503(2)(H)(III)

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:

Interpretation of 8503(2)(h)(iii)

Position:

2 times (contributions and interest)

Reasons:

Wording of legislation

								March 5, 1996

	HEADQUARTERS					HEADQUARTERS
	Registered Plans Division 		D. Duff
	Stella Black					(613) 957-8953
	Director
	Attention:  Andrew Donelle
								7-960470

Interpretation of subparagraph 8503(2)(h)(iii)

This is in response to your memorandum of January 25, 1996 requesting our opinion on the interpretation of subparagraph 8503(2)(h)(iii) of the Regulations.

Paragraph 8503(2)(h) permits a pension plan to have a provision for the payment of a single amount on a member's termination from the plan. If the conditions in subparagraph 8503(2)(h)(iii) are met the single amount cannot "exceed the amount that would be the balance in the member's net contribution account immediately before the time of payment of the single amount if, for each current service contribution made by the member under the provision, the account were credited with an additional amount equal to the amount of the contribution..."

The net contribution account is defined in subsection 8503(1) of the Regulations, as "an account that is

(a) credited with

(i)the amount of each contribution that is made by the member to the plan ...

and

(v)interest...in respect of each period throughout which the account has a positive balance..."

You referred to the single amount in subparagraph 8503(2)(h)(iii) as twice the member's contributions plus interest and you questioned whether it should be calculated as two times both the contributions and the interest or just two times contributions and one times the interest. It is our opinion that the first method is the correct one.

In our opinion the phrase, "immediately before the time of the payment", is intended only to provide a time at which the balance should be determined. It is to be determined at that time as if all other events had occurred, including the crediting of these additional amounts. The payment under paragraph 8503(2)(h) is the last payment to be made under the provision and this phrase would adjust the account balance for previous distributions. We do not interpret the phrase as having any impact on the timing of the crediting of the additional contributions.

The provision states that for each current service contribution the account were credited with an additional amount equal to the contribution, which suggests to us that the extra crediting should be done as if it occurred at the time of the actual contribution. Although we agree that the wording is not clear, in our view the wording better supports this interpretation than crediting one amount to the account before payout equal to the total current service contributions. It follows from our interpretation that the interest would be calculated on twice the current service contributions.

XXXXXXXXXX

We have advised XXXXXXXXXX of our position.

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate