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.
DOCUMENT TYPE:
Opinion
Principal Issues:
Purpose and application of subsection 204.2(1.3).
Position:
Provided all RRSP contributions made by an individual in 1997 are mandatory contributions resulting from a participation in a group RRSP, the individual will not be considered as having made over-contributions to an RRSP for purposes of the Part X.1 tax.
Reasons:
The group RRSP amount reduces the Cumulative excess amount on which the Part X.1 tax is based. In order to constitute a group RRSP amount, an amount must be a qualifying group RRSP premium as defined under subsection 204.2(1.31), i.e. a mandatory premium that the annuitant could not have prevented from being paid after the beginning of his participation and within 12 months of the payment of the premium.
XXXXXXXXXX 980195
P. -A. Sarrazin
August 26, 1998
Dear XXXXXXXXXX:
Re: Over-contributions to a registered retirement savings plan ("RRSP")
This is in reply to your letter of January 26, 1998, in which you requested our views on a situation involving the participation of employees of XXXXXXXXXX (the "Corporation") in the Corporation's group RRSP program.
In 1997, the Corporation closed its defined contribution pension plan and transferred the assets out to individual LIRA accounts. At the same time, the Corporation arranged for a group RRSP program to which mandatory contributions are made.
You wish to find out whether the rules in subsection 204.2(1.3) of the Income Tax Act (the "Act") can be of assistance to the Corporation's employees. Each employee participating in the Corporation's pension plan will have a pension adjustment ("PA") for 1996, which is based on their participation in the Corporation's pension plan in that year. The PA reduces their 1997 RRSP contribution room. Therefore, you are concerned that their group RRSP contributions may cause an over-contribution to their RRSPs and result in the application of the Part X.1 tax.
Revenue Canada Tax Services Offices are responsible for providing written confirmation with respect to the tax implications relating to completed transactions. Consequently, your enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments which are of a general nature and are not binding on the Department.
Part X.1 of the Act requires the calculation of an individual's cumulative excess amount ("CEA") for the purposes of imposing a monthly tax on RRSP over-contributions. Subsection 204(2.1) provides for the calculation of the CEA, which excludes the group RRSP amount in respect of the individual at that time.
In order to qualify as a group RRSP amount, a premium must meet the definition of "qualifying group RRSP premium" under subsection 204.2(1.31) of the Act. In general terms, it must be a mandatory premium that the annuitant could not have prevented from being paid after the beginning of his participation and within 12 months of the payment of the premium.
Generally, provided that the only RRSP contributions made by an individual in 1997 are mandatory contributions resulting from participation in a group RRSP, the individual will not have made an over-contribution to an RRSP for purposes of the Part X.1 tax. When an individual makes RRSP contributions additional to those which are mandatory by virtue of the group RRSP program, or in other circumstances, Part X.1 tax may apply.
In order to determine whether an individual will be subject to the over-contribution tax, we refer you to the Department's guide entitled "RRSPs and other Registered Plans for Retirement" (attached). On page 14, a table is provided to assist you in determining whether the over-contribution tax applies in specific situations. Also attached is a copy of form T1-OVP, which must be completed by individuals who are subject to the over-contribution tax.
We trust that these comments will be of assistance.
Yours truly,
Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
Attachments
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