1998 Ruling 9820073 - UNFUNDED XXXXXXXXXX PENSION, RCA

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: Would an unfunded pension plan be an RCA where the employee's benefits are kept track by the XXXXXXXXXX?

Position: No.

Reasons: The fact that benefit entitlements are maintained by XXXXXXXXXX does not make a plan funded for RCA purposes.

XXXXXXXXXX
XXXXXXXXXX 980297, 982007
XXXXXXXXXX

XXXXXXXXXX, 1998

Dear Sir:

Re: Advance Income Tax Ruling
XXXXXXXXXX
XXXXXXXXXX

This is in reply to your letters dated XXXXXXXXXX, wherein you requested an advance income tax ruling in respect of the above-referenced XXXXXXXXXX (the "Plan"). We also acknowledge the information provided during our various telephone conversations (XXXXXXXXXX).

Our understanding of the relevant facts, proposed transactions and purpose of the proposed transactions is as follows:

Relevant Facts

1. XXXXXXXXXX (the "Organization") is a body of XXXXXXXXXX (the "Affiliate"). The Organization is composed of XXXXXXXXXX (the "Employers") that are chartered bodies of the Organization. Each of these Employers is XXXXXXXXXX, exempt from Part I tax under subsection 149(1) of the Act. Through these Employers, the Organization represents XXXXXXXXXX.

The Organization's account number is XXXXXXXXXX which is only used for its payroll remittances. The Organization's business address is XXXXXXXXXX.

2. The Affiliate sponsors a registered pension plan (XXXXXXXXXX) (the "RPP"), within the meaning assigned by subsection 248(1) of the Income Tax Act (the "Act"). The Employers' employees are eligible to be members of the RPP. These employees were also eligible to be members of the XXXXXXXXXX registered pension plan (the "Other Pension") (XXXXXXXXXX). However, when the pension adjustment rules were revised, the particular employees were no longer able to retain membership in both pension plans because the combined benefits exceeded the limits allowed under the Act and Income Tax Regulations (the "Regulations"). Consequently, the Organization amended the terms of the Other Pension to exclude the employees of any of the Employers who were members of the RPP.

3. The Organization would like to provide the employees of the Employers that are excluded from participating in the Other Pension with additional pension benefits to make up for their lost benefits resulting from the limits imposed by the Act and Regulations.

Proposed Transaction

4. The Organization proposes to establish the Plan. The President of the Organization will appoint a committee (the "Committee") to administer the Plan. The terms and conditions of the Plan that are relevant to the proposed transactions may be summarized as follows:

(a) In order to have the employees of a particular Employer participate in the Plan, the Employer will have to enter into a participation agreement with the Organization (the "Participating Employer").

(b) An employee of a Participating Employer is eligible to become a member of the Plan (the "Member") after completing certain periods of continuous service, as defined in Section 1 of the Plan.

(c) A Member's pension entitlements, under the Plan, will be based on the number of credited current service and past service hours with each Participating Employer. An actuary will determine each Participating Employer's proportion of the liability in respect of a Member's pension entitlements under the Plan.

(d) The Participating Employer will be responsible for the payment of benefits under the Plan that relate to the period that the Member was an employee of the Participating Employer. The Participating Employer will establish a bank account for the purpose of setting aside and investing such sums of money that may be required to meet its liabilities under the Plan. The Participating Employer will be the sole legal and beneficial owner of all amounts held in the bank account and such amounts will be available for the general creditors of the Participating Employer. No assets will be set aside or earmarked in the name of any Member and no Member will have any direct claim against any assets held by the Participating Employer for the purposes of the Plan.

(e) Where a Member is entitled to receive an amount under the Plan, each Participating Employer will pay its particular proportion of the amount to the Member. Each Participating Employer will be responsible for the reporting and withholding obligations in respect of the payments it makes to a Member under the Plan.

(f) The Committee has the power to amend the Plan or terminate it at any time and in any manner, in its sole and absolute discretion. If the Plan is terminated in its entirety, Members shall be paid a lump sum equal to the actuarial equivalent value of the Member's remaining benefits. Where the Participating Employer does not have sufficient assets to meet its obligations, the Committee will reduce the benefits payable to the Members in respect of the particular Participating Employer in a manner that is just and equitable. The Committee may also reduce a Member's entitlements where a Participating Employer is unable, or will not pay, for all or part of the Member's benefits.

(g) The Committee will ensure that the Plan will not constitute a pension plan under a federal or provincial pension benefits standards act which would require funding under such pension legislation.

Purpose of the Proposed Transaction

5. The purpose of the proposed transaction is to provide Members with additional pension benefits that are more in line with the pension benefits enjoyed by employees of the Affiliate.

Additional Information

6. We understand that to the best of your knowledge and that of the Organization, none of the issues involved in this ruling request:

(a) are in an earlier return of the Organization or a related person;

(b) are being considered by a tax services office or taxation centre in connection with a previously filed tax return of the Organization or a related person;

(c) are under objection by the Organization or a related person;

(d) are before the courts; and

(e) are the subject of a ruling previously issued by this Directorate to the Organization or a related person, except as noted below.

Rulings Given

Provided that the statement of facts and proposed transaction are correct and constitute a complete disclosure of all of the relevant facts and proposed transaction, and that the terms of the Plan are as set out in your submissions and described in 4(a) to (e) and (g) above, we rule as follows:

A. The Plan does not constitute a "salary deferral arrangement" within the meaning assigned by subsection 248(1) of the Act.

B. The Plan does not constitute a "retirement compensation arrangement" within the meaning assigned by subsection 248(1) of the Act.

C. The amounts received by a Member (including any applicable withholding taxes thereon), as described in subparagraph 4(e) above, from the various Participating Employers shall be included in the Member's income under subparagraph 56(1)(a)(i) of the Act.

The above rulings, which are based on the Act in its present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996, and are binding on Revenue Canada provided that the Plan is implemented within six months of the date of this letter.

Yours truly,

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

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