16 January 1997 Internal T.I. 9635267 - REPORTING DISABILITY PAYMENTS FROM RPP

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:

Reporting of disability benefits from an RPP on a T4A

Position:

Confirmed prior comments XXXXXXXXXX

Reasons:

Our prior answers are valid but we agreed that errors can occur as a result of processing procedures

			January 16, 1997

	Winnipeg Tax Services Office          Headquarters
	Bruce Cook                            Financial Industries
  	Director                                Division
(613) 957-8953
	Attention: Nori Rubert
	             Payroll Audit
			7-963526

Disability Benefits from a Pension Plan

This is in reply to your facsimile of October 21, 1996, in follow-up to our previous memo of September 17, 1996 (file 962530).

We would first like to confirm the comments made in our previous memo:

1.An amount received out of or under a registered pension plan is a pension benefit taxable in accordance with subparagraph 56(1)(a)(i) of the Income Tax Act (the "Act");

2. The definitions in subsection 118(7) of the Act of "pension income" and "qualified pension income" both include a payment in respect of a life annuity out of or under a superannuation or pension plan"; and

3. Disability benefits paid out of a registered pension plan may or may not be payments in respect of a life annuity.

Subsection 118(3) of the Act permits a tax credit in respect of an individual's "pension income" or "qualified pension income" received in a year and subsection 118(7) of the Act defines these terms for this purpose. However, it is important to note that the definitions are only for the purposes of subsection 118(3) and that they effectively restrict the meaning of the term "pension income" as otherwise used in the Act. In other words, what is necessarily pension income for the purposes of subparagraph 56(1)(a)(i) of the Act is not necessarily pension income for the purposes of subsection 118(3) of the Act. Accordingly if a disability payment is paid out of a registered pension plan:

1. All of the payment should be reported as pension income under subparagraph 56(1)(a)(i) of the Act;

2. No amount will qualify as pension income or qualified pension income for the purposes of subsection 118(3) unless it is also paid in the form of a life annuity; and

3. The amount will not qualify as earned income for the purpose of computing RRSP contribution room.

XXXXXXXXXX

With respect to the balance of your memo, we recognize that a pension benefit may also be similar in nature to a long term disability benefit. However a pension plan is not an insurance plan and in our opinion it would be inappropriate to include amounts paid under the terms of a pension plan as insurance benefits. Regulation 8509(4.1) does not have any application to this discussion. It contains grandfathering rules in respect of benefits being paid as a result of a member being physically on mentally impaired prior to 1992.

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