23 July 1997 External T.I. 9718335 - REVOCATION 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:

Tax implications when RPP registration is revoked.

Position:

Becomes an RCA - general statement about tax consequences.

Reasons:

Funded pension plan which is not registered is an RCA.

XXXXXXXXXX 971833

Attention: XXXXXXXXXX

July 23, 1997

Re: Registered Pension Plan ("RPP")

This is in reply to your letter of July 3, 1997, in which you ask several questions concerning the income tax implications upon the revocation of the registration of an RPP. Your questions and our answers follow.

QUESTION 1. It is our understanding that a deregistered pension plan becomes a "retirement compensation arrangement" ("RCA"). Is any refundable tax payable at the time of deregistration with respect to existing plan assets?

ANSWER 1. As stated in our answer to question 49 at the 1992 Canadian Tax Foundation Conference, Part XI.3 tax is determined according to the definition of "refundable tax" in subsection 207.5(1) of the Income Tax Act (the "Act"). As indicated therein it includes "50% of all contributions made under the arrangement while it was a retirement compensation arrangement". Therefore, the Department generally would take the position that Part XI.3 tax is not applicable to contributions made before, and investment income accrued to, the effective date of the revocation of the plan's registration. It is the Department's position that the date the arrangement becomes a retirement compensation arrangement is the effective date on which the registration of the RPP is revoked.

QUESTION 2. Are there any consequences under the Act to plan members or to the plan sponsor at the time of the deregistration?

ANSWER 2. Where the deregistration does not cause a change in the ownership of the plan property and the property remains in the trust, there is no income inclusion under the Income Tax Act to either the sponsor employer or the plan members as a result of the deregistration. Aside from the imposition of Part XI.3 tax with respect to post-revocation contributions and income, the change in the plan's status means that the deduction for employer and employee contributions to the "retirement compensation arrangement" will be subject to the provisions contained in, respectively, paragraph 20(1)(r) and clause 8(1)(m.2)(iii)(B) of the Act; and that the amounts received out of the plan will be included in the employer's or employee's income pursuant to, respectively, paragraph 12(1)(n.3) and 56(1)(x) of the Act. There are several other Part I provisions which become relevant to the sponsor, the plan and its beneficiaries or other recipients after its registration is revoked and it is considered a "retirement compensation arrangement" for purposes of the Act.

We trust our comments will be of assistance to you.

Yours truly,

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