9 July 1996 External T.I. 9622525 - PENSION TRANSFER TO RRSP AND RCA

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:

Large payout of RPP funds 1. can excess be contributed to an RCA by employee and deducted 2. Can surplus payout be transfered as a refund of contributions.

Position:

1. No.

2. A refund of contributions can be made. Explained rules (but not likely of any real benefit in the case at hand)

Reasons: Routine explanation of law.

								5-962252
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Attention: XXXXXXXXXX

July 9, 1996

Dear Sirs:

Re: Transfer of Pension Income to a Retirement Compensation Arrangement

This is in reply to your facsimiles of June 19 and 25, 1996, regarding the transfer of excess commuted values of a pension to a Registered Retirement Savings Plan (an "RRSP") and Retirement Compensation Arrangement (an "RCA").

As you noted in your letter of June 25, an individual can transfer an amount from a defined benefit registered pension plan (an "RPP") to an RRSP under subsection 147.3(4) of the Income Tax Act (the "Act") to the extent the amount does not exceed a "Prescribed Amount" as defined in section 8517 of the Income Tax Regulations. Any excess received by the individual or transferred into an RRSP must be included in the individuals income. Given this consequence, you have noted that clause 8(1)(m.2)(iii)(B) of the Act permits the deduction of certain amounts contributed to an RCA by an employee where the RCA is a pension plan the registration of which has been revoked. You have therefore asked if we would allow the individual to transfer the excess to an RCA and use this deduction to offset the inclusion of the excess in income.

Clause 8(1)(m.2)(iii)(B) of the Act allows a deduction where the RCA is a pension that was previously registered as an RPP and the contribution by the employee was required in accordance with the terms of the plan as last registered. In your proposal the RCA would never have been registered and the contribution never required under its terms as last registered. Therefore a deduction could not be allowed.

In your letter of June 19, you noted that the Pension Benefits Act of Ontario permits a member to receive refunds of contributions with interest where the refund represents more than 50% of the commuted value of the defined benefit provision in respect of which the contributions were made. You then asked if such payments could be treated as refunds such that the limitation under paragraph 147.3(4)(b) would not apply to restrict their transfer to an RRSP.

Refunds of contributions to an RPP in these circumstances are accommodated under the provisions of subparagraph 8502(c)(iii) of the Regulations if the payments are in the form of benefits and subparagraph 8502(d)(i) of the Regulations if they are in the form of distributions. In respect of amounts paid as benefits, the provisions of subsection 8503(2) also apply and in this case, paragraph 8503(2)(h) will have particular application.

With respect to payments under the Pension Benefits Act of Ontario we generally accept that the payment can be treated as either a benefit or a refund of contributions. Where the amount is treated as a benefit, the amount can be transferred to an RRSP in accordance with the provisions of subsection 147.3(4) of the Act. In this case the amount will be a transfer in full or partial satisfaction of benefits to which the member is entitled and the provisions of paragraph 147.3(4)(b) will apply. Where the payment is transferred to an RRSP that may be freely commuted the amount can be treated as a refund of contributions and it may be transferred to the RRSP under the provisions of subsection 147.3(6) of the Act. However, since subsection 147.3(6) only allows the transfer of pre 1991 contributions (plus interest) a plan administer will have to apportion the distribution between pre 1991 and post 1990 contributions on a reasonable basis to determine the amount that may be transferred.

Yours truly,

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