22 July 1997 External T.I. 9717515 - BRIDGE BENEFITS OUTSIDE OF 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:

Will a payment of periodic amounts from age 60 to 65 be subject to 254(b) where the amount is based on payments under the CPP after age 65?

Position:

Section 254 only applies if the right created is a right to an amount under a pension plan.

Reasons:

Section 254 is intended to apply where rights are created to replace existing or future rights to amounts under a pension.

XXXXXXXXXX 971751

Attention: XXXXXXXXXX

July 22, 1997

Dear Sirs:

Re: Paragraph 254(b) of the Income Tax Act (the "Act")

This is in reply to your letter of June 27, 1997, in which you requested our comments concerning the application of paragraph 254(b) of the Act.

You are considering a situation where an employer agrees to pay monthly payments to an employee retiring at age 60, where the amounts equal the monthly payments the employee will receive under the Canada Pension Plan after age 65. Generally such payments would be provided as bridge benefits under the terms of a pension plan.

The situation described in your letter appears to relate to a 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 specifically address the situation detailed in your letter. However we can provide the following general comments which may be of assistance to you.

The provisions of section 254 of the Act apply where a document has been issued or a contract entered into purporting to create, to establish, to extinguish or to be in substitution for, a taxpayer's right to an amount out of a superannuation or pension plan. Accordingly, paragraph 254(b) of the Act will not apply where an agreement is entered into to create a taxpayer's right to receive amounts that are not amounts otherwise provided under a superannuation or pension plan.

Please note that the Department has not previously considered whether payments of bridging benefits outside of a registered pension plan are retiring allowance payments or supplementary pension benefits and we offer no comment on your statement that they are retiring allowance payments.

We trust these comments will be of assistance.

Yours truly,

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