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 extra $1500 is available for member of defined benefit pension plan for years where no employer or employee contributions were required.
Position:
No.
Reasons:
Defined benefits for those years must be funded in some way (surplus or future contributions) which includes employer contributions.
961279
XXXXXXXXXX P. Spice
Attention: XXXXXXXXXX
June 19, 1996
Dear Sirs:
Re: Paragraph 60(j.1) of the Income Tax Act (the "Act"):
Meaning of "Vested" Employer Contributions
This is in reply to your facsimile transmission of April 12, 1996, in which you ask for an interpretation of clause 60(j.1)(ii)(B) of the Act. Your query relates to the phrase "years before 1989 in respect of which employer contributions under...a pension plan...of the employer...had vested in the retiree at the time of the payment (of the retiring allowance)".
The situation you describe relates to an actual defined benefit pension plan and members who were credited with service before 1967, but for which no employee or employer contributions were required. We are unable to provide a binding opinion except in the context of an advance income tax ruling but can provide the following general comments.
The provision in question involves a determination of the years for which pension benefits have vested at the time the retiring allowance is paid. Therefore, if at the time of that payment the employee is entitled to receive the defined benefits in respect of the pre-1967 years of employment, it is our view that employer contributions "had vested" and the amount eligible for a tax-deferred transfer to a registered retirement savings plan will be limited to $2000 per year. Although you indicate that no employer contributions were required in respect of those years, the funding of those benefits must relate to property in the pension plan which has its source in contributions by the employer. Such contributions could be part of the surplus of the plan or be required contributions in future.
Please refer to Technical News No. 7 (copy enclosed) at page 5 ("Retiring Allowances - (d) Vesting") which discusses our interpretation of the meaning of "vested" in the context of clause 60(j.1)(ii)(B) of the Act. 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
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