7 January 1999 External T.I. 9819635 - ITAR 40(7), ELIGIBLE AMOUNT

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:

Is the amount eligible under ITAR 40(7) prorated to reflect plan surplus that subsequently exists?

Position: No

Reasons:

The provision clearly provides that the amount calculated is the amount eligible.

XXXXXXXXXX 981963
M. P. Sarazin
Attention: XXXXXXXXXX

January 7, 1999

Dear Sirs:

Re: Subsection 40(7) of the Income Tax Application Rules (“ITAR”)

This is in reply to your letter dated July 28, 1998, wherein you requested clarification regarding the application of subsection 40(7) of the ITAR. In particular, you question whether the amount determined under the provision would be adjusted to reflect the performance of the pension plan.

The amount eligible under subsection 40(7) of the ITAR is restricted to the lesser of the amount determined under subsection 40(1) of the ITAR (the “First Limit”) and the amount that the employee would have received out of the plan had the employee withdrawn from the plan on January 1, 1972, subject to the conditions in paragraph 40(7)(b) and (c) of the ITAR (the “Second Limit”). This position is confirmed in paragraph 13 of Interpretation Bulletin IT-281R2. For greater certainty, the amount is not affected should a portion of the lump-sum payment be transferred to a RRSP. In addition, once an amount is computed in respect of the Second Limit, it will not fluctuate as a result of the pension plan’s performance after 1971 nor should any interest component be added to the amount. Finally, in computing the portion of the residual death refunds paid to a member’s beneficiary that will qualify under subsection 40(7) of the ITAR, we confirm that the computation of the Second Limit will not be affected by the pension benefits previously paid to the deceased member.

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

Yours truly,

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