30 November 1996 Ruling 9718733 - XXXXXXXXXX UNFUNDED PENSION PLAN

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:

Whether increasing benefit under unfunded supplemental pension plan causes it to become SDA, RCA or makes members otherwise subject to immediate taxation?

Position: No.

Reasons:

Increase in combined contributions by employee & employer to a limit of 18% of pensionable earnings (as defined in registered pension plan) in actual cash contributions to RPP and in notional employer contributions to unfunded plan does not cause the unfunded plan to become a salary deferral arrangement. Can't be an RCA because not funded; 12(4) can't apply because taxpayer does not own the principal; and no taxes until amounts actually received out of the supplemental plan.

XXXXXXXXXX							971873
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1997

Dear Sirs:

Re: Advance Income Tax Ruling
XXXXXXXXXX
Amendment to Supplemental Pension Plan (the "Supplemental Plan")

This is in reply to your letters of XXXXXXXXXX, in which you request an advance income tax ruling on behalf of the above-named client, and further to our telephone conversation XXXXXXXXXX.

FACTS

1.XXXXXXXXXX a registered pension plan for its XXXXXXXXXX Staff and a separate registered pension plan for its XXXXXXXXXX Staff (individually and collectively referred to herein as, respectively, "the Plan" and "the Plans"). Copies of the Plans were attached to your advance ruling request.

2.The Plans are primarily defined contribution (money purchase) plans, although they have a defined benefit component for certain members who were members of prior plans.

3.Member contributions in the case of XXXXXXXXXX Staff are either 1.5% or 5.5% of pensionable earnings; in the case of XXXXXXXXXX Staff, they are either 6% of pensionable earnings less Canada Pension Plan contributions, or 2.5% of pensionable earnings. XXXXXXXXXX contributes 8.5% for XXXXXXXXXX Staff and between 7.5% and 8.5% of pensionable earnings depending on years of service, for XXXXXXXXXX Staff.

4.The total amount of member and XXXXXXXXXX contributions in respect of an individual member is limited by the Income Tax Act (the "Act"), for example, $13,500 in 1997.

5.XXXXXXXXXX obtained an advance income tax ruling (E9408603) dated XXXXXXXXXX, with respect to the proposed establishment of the Supplemental Plan which provides pension benefits additional to those provided under the Plans. The Supplemental Plan has been established in accordance with the aforementioned advance income tax ruling. The relevant terms of the Supplemental Plan are as follows:

(a)Notional contribution accounts will be established in respect of individuals eligible to participate in the Supplemental Plan. These accounts will be credited with the difference between the contributions XXXXXXXXXX would make to the Plan on behalf of the individual if there were no contribution limits and the contributions actually made by XXXXXXXXXX on behalf of the individual.

(b)XXXXXXXXXX will set aside and invest sums of money equal to the contributions credited to the notional contribution accounts. These earmarked assets will continue to belong to XXXXXXXXXX; the members of the Supplemental Plan will not have any direct claims against the assets. In particular, the earmarked assets will not be held in trust for the benefit of Supplemental Plan members and no assets of XXXXXXXXXX have been or will be set aside in the name of a particular employee in respect of the Supplemental Plan.

(c)All the assets relevant to the Supplemental Plan will be available for the general creditors of XXXXXXXXXX.

(d)The Supplemental Plan will operate as a money purchase plan (although as described above there are no assets held in trust for the purposes of the Supplemental Plan). The notional contribution accounts will be adjusted annually by reference to the investment experience of the earmarked assets, net of the Supplemental Plan administrative expenses. Normally, the adjustments will consist of credits to the accounts, although conceivably if the earmarked assets are heavily invested in equities or long term bonds, there could be a loss for a year. In this case, the accounts would be reduced by their "share" of the loss.

(e)Supplemental Plan members will be provided with statements each year setting out the amounts added to and deducted from their notional contribution accounts.

(f)If a member retires on or after reaching normal retirement age for the purposes of the Supplemental Plan, XXXXXXXXXX will pay an amount equal to the balance in the member's notional contribution account to the member in equal annual instalments over a period of fifteen years; provided that if the member elects prior to his or her retirement, XXXXXXXXXX will pay the amount in equal annual instalments over the numbers of years designated by the member, not to be fewer than two.

(g)On termination (including early retirement) prior to normal retirement, a member will be entitled to receive from XXXXXXXXXX the balance in the member's notional contribution account either in a lump sum or in equal annual payments over a period of not more than fifteen years. The member will be required to elect the form of payment prior to the effective date of termination. A terminating member is entitled to elect a deferred commencement date for the commencement of the annual payments. If a member terminates prior to becoming eligible to elect early retirement under the terms of the Plans, and elects the annual payment option, the earliest commencement date for the annual payments will be the date he or she could elect early retirement. Where the commencement of the annual payments is postponed after the member's termination, the member's notional contribution account will continue to be maintained until the commencement of the annual payments.

(h)If a member dies before termination of employment and has designated his or her spouse as the beneficiary under the Supplemental Plan, the spouse will be entitled to receive from XXXXXXXXXX the balance in the member's notional contribution account either in a lump sum or in equal annual payments over a period of not more than fifteen years. The spouse will be required to elect the form of payment before any payments are made by XXXXXXXXXX. If there is a non-spouse beneficiary, then XXXXXXXXXX will make a lump sum payment equal to the balance in the member's notional contribution account to such beneficiary.

PROPOSED AMENDMENT

6.XXXXXXXXXX proposes to amend the clause described in 5(a) above in the following manner (the proposed amendment is underlined):

(a)Notional contribution accounts will be established in respect of individuals eligible to participate in the Supplemental Plan. These accounts will be credited with the difference between the contributions XXXXXXXXXX would make to the Plans on behalf of the individual if there were no contribution limits and the contributions actually made by XXXXXXXXXX on behalf of the individual. Where agreed in writing between XXXXXXXXXX and the individual, XXXXXXXXXX shall credit the notional contribution account annually with an "additional notional contribution" in the amount agreed, provided that the total of the amount actually contributed in the year to the Plan by the member and XXXXXXXXXX and the notional contributions (including the "additional notional contributions") made by XXXXXXXXXX in the year shall not exceed 18% of pensionable earnings under the Plan.

PURPOSE OF THE PROPOSED AMENDMENT

7.The purpose of the proposed amendment is to provide for additional retirement income for high income earners. The Supplemental Plan notional contributions are currently limited by the total that would have been contributed to the Plans but for the limits under the Act. The proposed amendment would allow a reasonable amount of additional contributions to be made by XXXXXXXXXX to provide additional retirement income.

OTHER INFORMATION

8.To the best of XXXXXXXXXX knowledge none of the issues involved in this ruling request

(i)is in an earlier return of XXXXXXXXXX or a related person,

(ii)is being considered by a tax services office or taxation centre in connection with a previously filed tax return of XXXXXXXXXX or a related person,

(iii)is under objection by XXXXXXXXXX or a related person,

(iv)is before the courts or under appeal.

The issues involved in this ruling request relate to the Supplemental Plan which was the subject of the advance income tax ruling of XXXXXXXXXX (E9408603).

9.XXXXXXXXXX is served by the XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Tax Centre.

RULINGS GIVEN

Provided the above statement of facts and proposed amendment are accurate and constitute a complete disclosure of all the relevant facts and proposed amendment, and provided the amendment is made as proposed, we rule as follows:

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

B.The Supplemental Plan as amended 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 Supplemental Plan as amended to require any amount to be included in computing the member's income for a year as interest with respect to the balance in the member's notional contribution account.

D.Each payment made by XXXXXXXXXX to a member, his or her spouse, or other beneficiary, as the case may be, under the Supplemental Plan as amended, will be required to 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, paragraph 6(1)(a) or 56(1)(a) of the Act as a result of, in and by itself, the members participation in the Supplemental Plan as amended, other than as indicated in ruling D.

The above advance income tax rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R3 dated December 30, 1996, issued by Revenue Canada, and are binding upon Revenue Canada provided the proposed amendment is made to the Supplemental Plan on or before XXXXXXXXXX.

Yours truly,

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