24 February 1998 Internal T.I. 9731327 - REPAYMENT OF PENSION BENEFITS

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 the taxpayer get a reassessment to allow a greater deduction for his pension payback costs?

Position:

1.1. The Taxpayer was phoned on December 19, 1997. We advised him that someone from the Tax Services Office would be contacted by us and provided with our comments on this matter. The TSO would then initiate any corrections that are necessary and would contact him to discuss these.

2. General explanation of provisions was provided to the TSO.

Reasons:

1. The taxpayer's issues involve completed transactions and reassessments of returns already filed. Any adjustments must be made through the TSO. We can only provide advise to the TSO.

2. Additional information will be needed to determine what particular sections of the Act are applicable.

								February 24, 1998

	Vancouver Island Tax Services Office	Headquarters
F. Vivash 						W.C. Harding
	Director						(613) 957-8953

								973132

XXXXXXXXXX
Deduction of R.C.M.P. Pension Paybacks

The attached letter from XXXXXXXXXX concerning deductions in 1995 and 1996 with respect to the repayment of pension benefits he previously received was received by our office. We contacted XXXXXXXXXX and advised him that since his situation deals with a completed transaction and possible reassessments, it must be handled through your office. We also advised him that we would provide you with our comments on the matter and our assurances that we would be available to provide any assistance you needed to process his request. It is our understanding that XXXXXXXXXX previously discussed the matter with Ms Mayzes of your Office.

XXXXXXXXXX indicates in his letter that he was a member of the Royal Canadian Mounted Police Pension Plan (the "RCMP Plan") and received benefits under that plan from XXXXXXXXXX. At that time, XXXXXXXXXX elected to repay the benefits he had received under the RCMP plan in return for additional service credits under the Public Service Superannuation Act (the PSSA)

XXXXXXXXXX

If the above facts are correct, XXXXXXXXXX should be entitled to deductions for the amounts repaid to the RCMP Plan in accordance with the provisions of paragraphs 60(j.03) and 60(j.04) of the Income Tax Act (the "Act") as well as deductions under paragraph 8(1)(m) for both current and past service contributions paid to the PSSA, to the extent permitted under paragraph 147.2(4)(a) (b) and/or (c) of the Act. However, unless XXXXXXXXXX made contributions in either 1995 or 1996 to the PSSA for service before 1990 while he was not a contributor to any plan, the total of all contributions deductible in either 1995 or 1996 should not likely exceed the amount of $3,500 which he has already claimed for those years. Accordingly we don't think any reassessments will be required. However, XXXXXXXXXX may still need your assistance in preparing proper carry forward schedules for any undeducted contributions.

Paragraph 60(j.03) of the Act provides a deduction for the repayment of pension benefits to the extent the benefits were repaid in the year or a previous year to a registered pension plan where:

- no deduction was available with respect to the amount for a preceding taxation year

- the repayment was made under a statutory provision prescribed under Regulation 6503 which, in this case, would be subsection 24(6) of the Royal Canadian Mounted Police Superannuation Act; and

- the amount was previously included in income as a pension benefit in any year prior to 1990; or

- the amount was paid as interest in respect of a repayment of such a pension benefit.

Paragraph 60(j.03) also limits the amount deductible in any year to $3,500 less any amounts deducted in the year as registered pension plan contributions under paragraph 8(1)(m) of the Act.

Paragraph 60(j.04) of the Act provides a similar deduction with respect to the repayment of pension benefits received after 1989. In this case the deduction must be made in respect of the repayment of pension benefits to the extent the amount was paid in the year to a registered pension plan where:

- no deduction was available for the year with respect to the amount under paragraph 8(1)(m) of the Act;

- the repayment was made under a statutory provision prescribed under Regulation 6503 which, in this case, would be subsection 24(6) of the Royal Canadian Mounted Police Superanuation Act; and

- the amount was previously included in income as a pension benefit in any year after 1989; and was not designated for the purposes of paragraph 60(j.2) of the Act; or

- the amount was paid as interest in respect of a repayment of such a pension benefit.

Contributions made by XXXXXXXXXX to the PSSA for prior years service would be deductible under paragraph 8(1)(m) of the Act in accordance with paragraph 147.2(4)(b) of the Act if they are in respect of service for years in which he was not a contributor to any pension plan or in accordance with paragraph 147.2(4)(c) if they are for years while he was a contributor. However, since we have not been provided with information on the PSSA contributions we can not provide further directions to you at this time.

To summarize, for the year 1995, the T4 indicates that the total repayment and/or past service contribution of $XXXXXXXXXX was for pre 1990 service. Once you have determined what portion of this amount was paid with respect to contributions to the PSSA (if any) and what portion was repaid to the RCMP plan, you can determine the amount XXXXXXXXXX may deduct in 1995 under the provisions of paragraphs 147.2(4)(b) and/or (c) of the Act with respect to the contribution to the PSSA. You may then add that amount to the $XXXXXXXXXX current service contributions made in 1995 to determine the total amount deductible for the year under paragraph 8(1)(m) of the Act.

Given the above calculation, (and assuming 60(j.2) has no application) you will then be able to determine the maximum deduction that may be available under subparagraph 60(j.03) of the Act in 1995. This will be equal to the lesser of the amount repaid to the RCMP plan with respect to pre 1990 benefits and $3,500 less the amount deductible in 1995 under paragraph 8(1)(m) of the Act.

A similar calculation must also be made for 1996. For this year, however, XXXXXXXXXX did not make any current contributions to the PSSA so a greater portion of the PSSA past service contributions and the RCMP repayments may be deductible.

Any deductions available under subsection 147.2(4) of the Act should be determined following the rules and limitations set out therein. Any amounts paid but not deductible in a year may be carried forward to a subsequent year as can repayments to the RCMP plan for pre 1990 pension benefits. As noted above, however, any post 1989 pension benefit repayments deductible under paragraph 60(j.04) of the Act may only be deducted in the year they are paid. Accordingly, care must be taken to ensure repayments for post 1989 pension benefits are properly identified and not carried forward.

If further assistance is required, please contact the officer indicated above.

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