26 September 1997 External T.I. 9723425 - ELIGIBLE AMOUNT, RESIDENCY

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:

Can amounts not eligible for 60(j)(i) deduction be transferred to an IRA in order to qualify for 60(j)(ii)?

Position:

GAAR may be applied if primary purpose is to avoid 60(j)(i).

Reasons:

There is no non-residency requirement for eligible amount.

	                     	972342
XXXXXXXXXX	                     M.P. Sarazin

Attention: XXXXXXXXXX

September 26, 1997

Dear Sir/Madam:

Re: Paragraph 60(j) and section 60.01 of the Income Tax Act

This is in reply to your letter dated September 3, 1997, wherein you requested confirmation of your understanding of the application of paragraph 60(j) and section 60.01 of the Income Tax Act (the "Act").

Position #1

You are of the view that amounts contributed by an employer to an employee's Individual Retirement Account in the United States would not qualify as an eligible amount, within the meaning assigned by section 60.01 of the Act.

Comments

A foreign retirement arrangement ("FRA") is defined in subsection 248(1) of the Act as a "prescribed plan or arrangement". Section 6803 of the Income Tax Regulations provides that an individual retirement account ("IRA") referred to in 408(a), (b) or (h) of the Internal Revenue Code of 1986 qualifies as an FRA for purposes of the Act. It is our understanding that there are no FRAs that are eligible to receive employer contributions. However, if an employer is entitled to contribute to an FRA then, by virtue of the application of paragraph 60.01(b) of the Act, the employer contributions would not qualify as an eligible amount for purposes of the Act.

Position #2

You are of the view that amounts contributed to an FRA by a Canadian resident individual would qualify as an eligible amount.

Comments

We confirm that there is no requirement that the individual contributing to the FRA be a non-resident in order for the amount to qualify as an eligible amount.

Position #3

Provided employer contributions to a foreign pension plan were made while the employee was not resident in Canada, the amount transferred from the foreign pension plan, which includes employer and employee contributions, to an FRA would qualify as an eligible amount.

Comments

Any amount transferred from a foreign pension plan to an FRA is considered an employee contribution to the FRA and it would qualify as an eligible amount. This would also be the case in respect of employer contributions. However, we have previously opined that where the purpose of the transfer from the pension plan to an FRA is to circumvent the application subparagraph 60(j)(i) of the Act then we would consider the application of subsection 245(2) of the Act.

Position #4

A lump-sum withdrawal from a SEP IRA or a 401(k) pension plan in the United States, regardless of whether it relates to employer or employee contributions, is eligible for a transfer under paragraph 60(j)(i) of the Act.

Comments

We have previously opined that amounts paid out of a SEP IRA or a 401(k) pension plan would be considered payments out of a pension plan for purposes of the Act. Consequently, where there is a lump-sum payment out of such plan that is attributable to services rendered by the taxpayer or the taxpayer's spouse in a period throughout which that person was not resident in Canada and the amount is included in the taxpayer's income under subparagraph 56(1)(a)(i) of the Act, the lump-sum payment out of the SEP IRA or the 401(k) pension plan would be eligible for transfer under subparagraph 60(j)(i) of the Act.

We trust the above comments will be of assistance to you.

Yours truly,

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