10 October 1996 External T.I. 9632845 - PAST SERVICE CONTRIBUTION FOR LEAVE OF ABSENCE PERIOD

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:

Past service contributions for leave of absence years.

Position:

Referred to 147.2(4)(b) & (c).

Reasons:

(b) will normally apply in the interim years of pre-1990 leave, while (c) will apply for the pre-90 year in which leave commenced & in which leave ended.

XXXXXXXXXX							963284

October 10, 1996

Dear Sir:

Re: Past Service Contributions
To a Registered Pension Plan ("RPP")
In Respect of a Period of Leave of Absence

This is in reply to your facsimile transmission of October 1, 1996, concerning an employee who wishes to contribute to an RPP in respect of a period of leave. You ask how much of the contribution can be deducted in one year.

Your question relates to a specific fact situation and we can only respond in the context of an advance income tax ruling request. Confirmation of the tax consequences relating to past transactions may be obtained from your local tax services office. However, we can offer the following general comments.

Where the contributions relate to service prior to 1990, the applicable deductions are contained in paragraphs 147.2(4)(b) and (c) of the Income Tax Act (the "Act"). These paragraphs apply where an employee makes a contribution in respect of pre-1990 service that is recognized as eligible service; where an RPP allows contributions to be made for a period of leave of absence, the leave period is considered eligible service under the plan.

Where contributions under the RPP relate to a leave of absence taken before 1990, the amount deductible by the employee in a particular taxation year will depend on whether the employee "was or was not a contributor" during the year in which he or she was on leave. The following comments set out in general terms the relevant rules. Further comments on these rules are contained at pages 5 and 6 of the 1995 RRSP and Other Registered Plans for Retirement Guide, copies of which are available at your local tax services office.

1.Employee did not contribute to any RPP during the pre-1990 year in which leave taken ("while not a contributor") - deduction under paragraph 147.2(4)(b).

Where contributions under the RPP relate to a leave of absence taken before 1990 and the employee did not contribute to any RPP during the pre-1990 year in which he or she was on leave, the deduction allowable in computing the income for the year in which the contribution is made or in later years is the least of:

i)the amount contributed minus amounts already deducted under paragraph 147.2(4)(b) of the Act,

ii)$3500, and

iii)($3500 multiplied by the number of pre-1990 years to which the contributions relate) minus amounts already deducted under paragraph 147.2(4)(b) of the Act and deducted under subparagraph 8(1)(m)(ii) of the Act.

The latter deduction relates to pre-1987 past service "additional voluntary contributions".

For example, if an employee contributed $10,000 in 1996 for leave taken in 1987, 1988 and 1989 and did not contribute to any RPP in those pre-90 years

a)$3500 would be deductible in computing 1996 income (plus any amount contributed in 1996 for current service),

b)$3500 would be deductible in computing 1997 income (plus any amount contributed in 1997 for current service), and

c)assuming the deductions are taken as described in a) and b), $3000 would be deductible in computing 1998 income (plus any amount contributed in 1998 for current service).

2.Employee contributed to the RPP during the pre-1990 year in which leave taken ("while a contributor") - deduction under paragraph 147.2(4)(c).

Where contributions under the RPP relate to a leave of absence taken before 1990 and the employee contributed under the RPP during the pre-1990 year in which he or she was on leave, the amount deductible in computing income for the year in which the contribution is made or for a subsequent taxation year is the lesser of

i)the amount contributed (but not including additional voluntary contributions, contributions included in the total calculated for purposes of paragraph 147.2(4)(b) of the Act and amounts deducted for previous years under paragraph 147.2(4)(c) of the Act), and

ii)$3500 minus the total of amounts deducted for the year as current service contributions to an RPP and as past service contributions under paragraph 147.2(4)(b) of the Act.

Where an individual's current service contribution for a year to an RPP exceeds $3500, no deduction is permitted under paragraph 147.2(4)(c) of the Act. This deduction may be carried forward indefinitely, however.

For example, if an employee contributed $10,000 in 1996 for leave taken in 1987, 1988 and 1989, and contributed $3500 or more in 1996 for current service, no portion of the $10,000 relating to the pre-90 years would be deductible by the employee in 1996.

There are also special rules concerning past-service contributions the employee is required to make under the terms of an agreement in writing made before March 28, 1988. If this is relevant, more information concerning these contributions can be obtained from the above-noted Guide.

We trust this information assists.

Yours truly,

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