25 February 1999 External T.I. 9818875 - RETIRING ALLOWANCE TO RPP - REPORTING

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: Reporting of a retiring allowance that is transferred to an RPP which exceeds the eligible amount under 60(j.1)(iii)(A). Tax treatment of the non-eligible portion of retiring allowance.

Position: Report as payment of retiring allowance on T4A-1998 box 27.

Reasons: Per payroll deductions guide and regulations.

XXXXXXXXXX 5-981887
Fouad Daaboul
Attention: XXXXXXXXXX

February 25, 1999

Dear Sirs:

Re: Direct Transfer of a Retiring Allowance to a Registered Pension Plan ("RPP")

This is in reply to your letter of July 16, 1998, concerning the reporting requirements on the payment of a retiring allowance where the eligible portion of the retiring allowance is transferred to a registered pension plan in accordance with subsection 60(j.1) and the non-eligible portion of the retiring allowance is also transferred to a registered pension plan.

As indicated in Information Circular 70-6R3, confirmation of the tax consequences flowing from completed transactions must be obtained from your local tax services office. This Directorate will provide a technical interpretation concerning the provisions of the Income Tax Act (the "Act") and Regulations but not with respect to specific factual or hypothetical transactions. We may, however, provide the following general comments concerning the provisions of the Act which are not binding on the Department.

Whether or not an amount paid as a retiring allowance is paid to the employee or transferred to a registered retirement savings plan ("RRSP") or registered pension plan ("RPP"), the full amount of the retiring allowance must be divided and reported on a T4A - 1998 as follows: the eligible portion for transfer into RRSP or RPP at box 26 and the non-eligible portion which cannot be transferred into RRSP or RPP at box 27. The individual taxpayer indicated on the T4A - 1998 must include the total of amounts showed in boxes 26 and 27 in income by reporting them on line 130 of his or her income tax return.

Where both the eligible amount of the retiring allowance and the non-eligible amount (i.e. the amount that cannot be deducted in computing income pursuant to subsection 60(j.1)) are transferred directly to a RPP, the amount paid to the RPP in respect of past service contributions that are deductible to the employee may be indicated in box 32 of the T4A supplementary. Where the contributions to the RPP are not indicated in box 32 of a T4A supplementary, or on any other information slip, the employee should be in a position to provide evidence that he or she has made a contribution to the RPP (for example, a letter from the trustee of the pension plan).

The portion of the employee's contributions to the RPP that meet the requirements of subsection 60(j.1) will be deductible to the employee pursuant to that subsection. The portion of the employee's contributions to the RPP that meet the requirements of paragraph 8(1)(m) will be deductible to the employee pursuant to that paragraph.

Please note that we are assuming that such RPP contributions are eligible contributions to a defined benefit provision of a RPP in the context of the RPP registration rules. A transfer of this nature to a money purchase provision of a RPP may result in unintended tax consequences which are beyond the scope of this letter.

Finally, no withholding of income tax is required and no form is required to be filled out in this regard, for the transfer of the eligible portion of the retiring allowance to an RPP or RRSP. However, if an employee wants to have a reduction in tax deductions on the non-eligible amount to transfer, he or she is required to get a letter of authority from his or her tax services office. Information on how to obtain such a letter is contained in the Revenue Canada publication Employer's Guide to Payroll Deductions.

We trust that our comments will be of assistance.

Yours truly,

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

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