20 February 1997 External T.I. 9700765 - FOREIGN PENSION PLANS

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:

Treatment of foreign pension arrangement for Canadian resident employees where employer also holds a non-life insurance contract.

Position:

No finite answers provided. General comments given. Such policies may not fund an RCA.

Reasons:

The letter seems to pertain to a factual situation that is not fully disclosed. Insufficient information given on the insurance contract.

XXXXXXXXXX 970076

Attention: XXXXXXXXXX

February 20, 1997

Dear Sirs:

Re: Foreign Pension Plans

This is in reply to your letter dated January 7, 1997, wherein you requested our comments regarding the requirement to report a pension adjustment in respect of a foreign pension arrangement for employees that are employed in Canada.

From the information provided in your letter it appears your enquiry may relate to a proposal in respect of a specific factual situation. Written confirmations of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3, dated December 30, 1996. Accordingly, we can not address the specific situation detailed in your letter at this time. However, we can provide the following general comments which may be of assistance to you.

Subparagraph 8308.1(2)(b) of the Income Tax Regulations (the "Regulations") provides for the calculation of a pension credit with respect to an individual for a year where the individual became entitled in the year to benefits under the foreign plan in respect of services rendered to an employer while the individual was a Canadian resident. In general, a pension credit will be determined in respect of a foreign plan where contributions to a foreign plan on behalf of the individual are not "residents contributions" as defined in subsection 207.6(5.1) of the Income Tax Act (the "Act") and are therefore not subject to the 50% refundable tax on contributions to a Retirement Compensation Arrangement (an "RCA").

Regulation 8308.1 also defines a "foreign plan" as "a plan or arrangement (determined without regard to subsection 207.6(5) of the Act that would, but for paragraph (l) of the definition "retirement compensation arrangement" in subsection 248(1) of the Act, be a retirement compensation arrangement". However, if a plan is not funded it can not be an RCA but for paragraph (l) of the definition and it will therefore not be a foreign plan. In our opinion, if an employer acquires an interest in an insurance policy (that is not a life insurance policy) and it is not acquired under the arrangement, the acquisition will not, of itself, result in the funding of the arrangement or cause the arrangement to be an RCA.

We trust the above comments will be of assistance to you.

Yours truly,

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