12 June 1996 External T.I. 9613595 - RPP SURPLUS SHARING CONSTRUCTIVE RECEIPT

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:

Is there constructive receipt of RRSP surplus when a surplus sharing agreement is entered into.

Position:

general reiteration of existing policy on constructive receipt.

Reasons:

Existing policy is applicable to scenario but final determination is a question of fact.

XXXXXXXXXX 5-961359

Attention: XXXXXXXXXX

June 12, 1996

Dear Sirs:

Re: Surplus Sharing Arrangements

This is in reply to your letter of February 22, 1996 with respect to the above noted topic. As you were advised by our Registered Plans Division your letter was referred to us for reply.

In your letter you are considering a situation where a registered pension plan ("RPP") that has an actuarial surplus is being wound up and you want to know what the Departments general position would be if the employer and members enter into a surplus sharing arrangement where a member may be able to receive a share of the surplus in the form of a lump sum payment or in the form of enhanced pension benefits.

In previous correspondence on this subject we were asked to comment on the application of subsection 8503(15) of the Income Tax Regulations (the "Regulations") in these circumstances. At that time we stated:

• (1)If an employee has absolute rights to the surplus in the IPP, (individual pension plan) subsection 8503(15) of the Regulations would not be applicable as there would be no employer contribution. The amount would be taxable to the employee under subparagraph 56(1)(a)(i), and subject to the deductibility rules in subsection 147.2(4) of the Act.
• (2)If the employer has absolute rights to the surplus but instead leaves it in the plan to provide additional pension benefits to the employee, it is our view that subsection 8503(15) of the Regulations would be applicable.

As prefaced, these positions will apply if an employer or employee, as the case may be has an absolute right to a portion of the actuarial surplus held in the RPP. They have no application to any situations where such absolute rights do not exist.

An absolute right to the actuarial surplus may result if the doctrine of constructive receipt is applied and, as noted by you, the Department's view is that constructive receipt will occur in situations where an amount is credited to a persons' debt or account, set apart for the person or is otherwise made available to the person without being subject to any restriction concerning its use.

We are not prepared to advise whether or not a person has constructive receipt of an amount in any particular hypothetical situation. Such a determination would be a question of fact that would have to be determined on a case by case basis. However, we can state that if a right to an amount or the quantum of an amount is subject to regulatory or judicial approval, we would not generally expect constructive receipt to occur before such approval is obtained. Furthermore if an election to receive an amount in one form or another is made before that time we would expect the comments in paragraph 11 of Interpretation Bulletin IT502 with respect to employee benefit plans would have equal application.

Yours truly,

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