6 March 1997 Ministerial Letter 9704508 - RRSP DEDUCTION - JUDGES

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:

RRSP deduction - follow up - re 970148

Position:

Reasons:

ADM'S OFFICE (2) ADM # 963188
PENDING COPY
RETURN TO 15TH FLOOR, ALBION TOWER

Signed March 6, 1997

XXXXXXXXXX

Dear XXXXXXXXXX:

This is further to our letter of January 30, 1997, wherein we indicated that we would provide you with examples concerning the amount that a federal judge may deduct as a contribution to a registered retirement savings plan ("RRSP"), when the regulation relating to the 1996 budget proposal was available.

As previously stated in our letter of January 30, 1997, where a judge is in receipt of a salary under the Judges Act, the Income Tax Regulations prescribe a reduction in the RRSP deduction limit. For 1996, the prescribed amount is the amount by which the lesser of 18% of the salary received as a judge for the previous year and the money purchase limit for the previous year exceeds $ 1,000.

On February 17, 1997, the Finance Minister released draft amendments to the Income Tax Regulations relating to retirement savings measures announced in the March 6, 1996 federal budget. The draft amendments modify, among others, the above prescribed amount for calendar years 1997 to 2004 inclusively. As a result, judges will generally lose all or part of the RRSP deduction limit that would otherwise have become available to them each year by virtue of the $ 1,000 offset.

For those calendar years, the prescribed amount of a judge for a year will be equal to the lesser of 18% of the salary received as a judge for the previous year minus $ 1,000 and the money purchase limit for the previous year.

Also, we would like to mention that the Federal Budget of February 18, 1997 proposes to reduce the $ 1 000 offset referred to above to $ 600 for 1998 and future RRSP years. In our view, this proposal will have a minimal consequence on the deduction limit of new judges.

You will find attached two examples which show how to calculate the RRSP deduction limit for the years 1996 and 1997.

I trust that the above information will be of assistance to you.

            Yours sincerely,

            Denis Lefebvre
            Assistant Deputy Minister
            Policy and Legislation Branch
L. Roy
957-2131
February 25, 1997
970450
      EXAMPLE  I

The following example is based on the Notice of Ways and Means Motion of December 1996 and the draft amendments to the Income Tax Regulations of February 1997.

An individual is appointed a judge in November 1996. The individual worked in a law firm and did not participate in a pension plan. For 1995 and 1996, the professional income as a lawyer, was $ 100,000 for each year and the individual received in 1996 $ 15,000 as a judge.

The RRSP deduction limit for this individual for 1996 and 1997 will be as follows assuming that there is no unused RRSP deduction room at the end of each taxation year.

                       1996         1997
Lesser of:

(a) RRSP dollar limit
for the year and $ 13,500 $ 13,500

(b) 18% of the earned
income for the
previous year 18,000 20,700

less:

The prescribed amount
for the year nil 1,700 (1)

RRSP deduction limit $ 13,500 $ 11,800

(1) lesser of

(a) 18% of $ 15,000 minus $ 1,000
(b) $ 13,500
EXAMPLE II

The following example is based on the Notice of Ways and Means Motion of December 1996 and the draft amendments to the Income Tax Regulations of February 1997.

An individual works as a judge for the years 1995 and 1996 and receives a salary of $ 150,000.

The RRSP deduction limit for this individual for 1996 and 1997 will be as follows assuming that there is no unused RRSP deduction room at the end of each taxation year.

1996 1997

Lesser of:

(a) RRSP dollar limit
for the year and $ 13,500 $ 13,500

(b) 18% of the earned
income for the
previous year 27,000 27,000

less:

The prescribed amount
for the year 14,500 (1) 13,500 (2)

RRSP deduction limit nil nil

(1) lesser of

(a) 18% of $ 150,000
(b) $ 15 500

less $1,000

(2) lesser of

(a) 18% of $ 150,000 minus $ 1,000
(b) $ 13,500