20 March 1998 External T.I. 9803535 - ADMIN RELIEF 8517(1)

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:

Will we rule that, for purposes of computing the prescribed amount under subsection 8517(1) of the Regulations, the member's age in the year the RPP was supposed to be terminated can be used instead of the member's age on the transfer date?

Position:

No

Reasons:

The law is very clear.

980353
XXXXXXXXXX M.P. Sarazin

March 20, 1998

Dear XXXXXXXXXX:

Re: Wind-up of a Registered Pension Plan

This is in reply to your letter dated February 5, 1998, wherein you requested administrative relief in respect of a pension surplus entitlement received in 1997 under a registered pension plan (“RPP”). You have asked us to allow you to transfer a portion of the pension surplus received from the RPP to your registered retirement income fund (“RRIF”) under subsection 147.3(4) of the Income Tax Act (the “Act”) and to rule that you may use your age on the RPP termination date and not your age on the transfer date in computing the variable B in the formula found in subsection 8517(1) of the Income Tax Regulations (the “Regulations”).

In a telephone conversation held on March 19, 1998 (XXXXXXXXXX/Sarazin), you advised us that the commuted value of your defined benefits under the RPP was transferred to your RRIF in 1992. However, the amount transferred to your RRIF in 1992, under subsection 147.3(4) of the Act, was less than the amount that could have been transferred in accordance with the formula found in subsection 8517(1) of the Regulations. You would like the Department’s approval to transfer to your RRIF a portion of the RPP surplus received in 1997, equal to the difference between the prescribed amount computed under subsection 8517(1) of the Regulations in 1992 and the amount actually transferred to your RRIF in 1992. Since the members of the RPP had no control over the provincial moratorium with respect to the distribution of the RPP’s surplus funds and the resultant delay in the establishment of an arbitration process under the Supplemental Pension Plans Act (Quebec), you are of the view that the Department should provide administrative relief to you and the certain other members of the RPP that are not entitled to transfer amounts to registered retirement savings plans (“RRSPs”) or RRIFs.

Comments

We regret that this Department cannot provide administrative relief when the application of the provisions of the Act and Regulations is very clear. However, we can provide you with the following general comments.

The provisions of subsection 147.3(4) of the Act were designed to allow for the direct transfer of a lump-sum amount from a defined benefit provision of an RPP to an RRSP or RRIF, subject to the prescribed limit computed under subsection 8517(1) of the Regulations. The Department’s views in respect of these direct transfers are found in paragraphs 15 to 19 of Interpretation Bulletin IT-528 (a copy of which is enclosed). As noted in paragraph 15 of IT-528, subsection 147.3(4) does not allow for the transfer of any portion of a member’s share of an actuarial surplus under a defined benefit provision. Also, since the transfer of this actuarial surplus to an RRSP or RRIF would result in larger tax-assisted retirement benefits than intended, there is no other provision in the Act that would allow this.

The amount that you had transferred directly to your RRIF in 1992 represented the amount of tax-assisted retirement benefits under the RPP that could be transferred on a tax-free basis under the Act and Regulations. We note that the amount was within the limit prescribed under subsection 8517(1) of the Regulations.

If, as you have stated, a former member of the RPP has transferred a portion of his or her surplus entitlement to an RRSP, the former member would be claiming a deduction in respect of his or her unused RRSP deduction room and no amount would be as a result of an allowable transfer under subsection 147.3(4) of the Act. The particular member would be using the surplus received from the RPP to make a regular RRSP contribution within the limits allowed under the Act.

We trust that 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