30 November 1996 Ruling 9712223 - SUPPLEMENTAL RETIREMENT ARRANGEMENT

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:

Is an unfunded supplemental pension plan an RCA or an SDA.

Position: No

Reasons:

RCA requires funding; SDA requires tax motivation

XXXXXXXXXX							971222
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1997

Dear Sirs:

Re: Advance Income Tax Ruling
XXXXXXXXXX

This is in reply to your letter dated XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of XXXXXXXXXX.

You have advised us that to the best of your knowledge and that of XXXXXXXXXX, none of the issues involved herein are being considered by a Tax Services Office or Taxation Centre of Revenue Canada in connection with a tax return already filed and that none of the issues are under objection or appeal.

Our understanding of the facts and proposed transactions is as follows:

Facts

1. XXXXXXXXXX.

It is a registered charity exempt from income tax under section 149 of the Income Tax Act (the "Act"). Its charity registration number is XXXXXXXXXX. XXXXXXXXXX is located at XXXXXXXXXX.

2. XXXXXXXXXX.

3.XXXXXXXXXX sponsors a defined benefit pension plan (the "Plan") for all of its staff who earn in excess of XXXXXXXXXX salary and are less than age XXXXXXXXXX. In addition, XXXXXXXXXX sponsors a second defined pension plan (the "Plan I"). Plan I covers staff members who were originally with the XXXXXXXXXX. Both the Plan and Plan I (the "Plans") are registered pension plans within the meaning of the Act. The Plan has, inter alia, the following attributes, which are equally applicable to Plan I effective XXXXXXXXXX. Plan I, as it relates to benefits for service rendered up to XXXXXXXXXX differs in some minor respects in respect of the Plan provisions described in paragraphs (a), (b) and (e) below.

(a) On normal retirement on XXXXXXXXXX, the member will be entitled to a lifetime pension equal to, for each year of participation in the Plans,

XXXXXXXXXX.

Members may retire after attaining the age of XXXXXXXXXX years and XXXXXXXXXX years of pensionable service,
XXXXXXXXXX.

(b) Benefits payable under the Plans are partially indexed to inflation.

XXXXXXXXXX.

(c) Notwithstanding paragraph 3(a) above, the annual pension payable to a member cannot exceed the lesser of: XXXXXXXXXX, or such greater limit as provided under the terms of the Act.

XXXXXXXXXX.

(d) Members are required to make contributions to the Plans equal to XXXXXXXXXX, up to a maximum total contribution of $XXXXXXXXXX. The Plans may be amended to require member contributions up to the maximum amount permitted under paragraph 8503(4)(a) and paragraph 8503(2)(h) of the Income Tax Regulations.

(e) In the event of the death of a member prior to retirement, the following benefits are provided:

XXXXXXXXXX.

(f) In the case of long-term disability, members continue to accrue benefits XXXXXXXXXX.

(g) On termination of employment prior to eligibility for early retirement the member may receive:

(i) a deferred pension benefit;

(ii) with XXXXXXXXXX years of service,

XXXXXXXXXX

(iii) the transfer of the commuted value of the accrued benefit to another locked-in tax deferred vehicle, such as an RRSP, an RRIF or a registered pension plan; or

(iv) for members with less than XXXXXXXXXX years of service,
XXXXXXXXXX.

Proposed Transactions

4. XXXXXXXXXX.

implement a supplemental retirement arrangement ("SRA") described in paragraph 5 below XXXXXXXXXX.

5.The SRA would provide pension benefits in excess of the limits under the Plans described in paragraph 3(c) above, and would have the following attributes:

(a) The pension benefit payable under the SRA will be calculated as the amount determined under the following formula:

benefit payable = A - B - C

Where:

A is the annual pension benefit that would be payable on salary (XXXXXXXXXX, or such greater amount as may be determined from time to time XXXXXXXXXX) under the Plans but for the limits imposed under the Act, as described in paragraph 3(c) above;

B is the annual pension benefit payable under the provisions of the Plans; and

C is the pension benefit attributable to a "notional account" determined to be the aggregate of;

(i) accumulated member contributions that would have been made under the Plans on all salary up to and including $XXXXXXXXXX to the effective date of the SRA, but for the limitations imposed under the Plans by the Act (as described in paragraph 3 above);

(ii) interest thereon from the time that such contributions would have been made, had they been permitted under the Plans, calculated at the rate applicable to member contributions under the Plans

and converted, using appropriate actuarial principles at the time of retirement, termination, death or disability, into an annual pension in the same form as the pension payable under the SRA and the Plans.

(b) In the event of the member's retirement, termination, death or disability, the benefits payable under the SRA would be paid at the same time and in the same form as benefits payable under the Plans. However, in the case of termination of employment prior to early retirement age, any payment of the commuted value of benefits to which the member would be entitled under the SRA would be paid in the form of a lump sum (i.e. no transfer of those amounts to an RRSP would be permitted).

XXXXXXXXXX.

(c) Since it is a charitable organization, XXXXXXXXXX financial accounting statements are prepared in accordance with generally accepted accounting principles and are maintained in accordance with the principles of fund accounting. For financial accounting purposes, the governing council of XXXXXXXXXX will from time to time appropriate funds out of its operating surplus which are to be set aside as a "fund for a specific purpose" in respect of its obligations under the SRA. The amount to be appropriated to such fund shall be determined based on actuarial advice as to XXXXXXXXXX liabilities under the SRA. However, the assets appropriated to such fund:

(i) shall not constitute trust property;

(ii) will be available to satisfy the claims of XXXXXXXXXX creditors, if necessary;

(iii) may be applied to any other purpose that XXXXXXXXXX may determine from time to time;

(iv) shall be commingled with other assets of XXXXXXXXXX; and

(v) shall not be subject to the direct claim of any members of the SRA.

(d) While XXXXXXXXXX intends that the SRA would be ongoing, it reserves the right to discontinue the SRA should the provisions of the Act or any other legislation be amended or interpreted so as to require the termination, suspension or material alteration of the SRA.

6. XXXXXXXXXX.

Purpose of the Proposed Transactions

The purpose of establishing the SRA is to provide supplementary pension benefits to members over and above those that would be permitted under the Plans.

Rulings Given

Provided that the statement of facts and proposed transactions are correct and constitute a complete disclosure of all the relevant facts and proposed transactions, and that the terms of the SRA are as set out in your submissions, we rule as follows:

A.The SRA will not constitute a salary deferral arrangement as that term is defined in subsection 248(1) of the Act.

B.The SRA will not constitute a retirement compensation arrangement as that term is defined in subsection 248(1) of the Act.

C.Subsection 12(4) of the Act will not apply to the individual members of the SRA to require any amount to be included in computing the member's income for a year as interest with respect to the balance in a member's account.

D.All payments made by XXXXXXXXXX to a member or his or her spouse, as the case may be, under the SRA, will be included in the income of the recipient in the year it is received as a superannuation or pension benefit pursuant to subparagraph 56(1)(a)(i) of the Act.

E.No amount will be included in the income of a member under subsection 5(1) of the Act or paragraph 6(1)(a) of the Act as a result of, in and by itself, the member's participation in the SRA, other than as indicated in Ruling D.

The above rulings, which are based on the Act in its present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996, and are binding on Revenue Canada, Customs, Excise and Taxation provided that the proposed transactions are completed within six months of the date of this letter.

Yours truly,

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