17 September 1998 External T.I. 9823695 - EMPLOYER CONTRIBUTION - VESTED

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: Whether extra $1500 is available for member of pension plan for years where no contribution was made by the employer.

Position: No

Reasons: Benefits for those years are funded in some way (surplus or future contributions) which includes employer contributions.

XXXXXXXXXX 5-982369
Fouad Daaboul
Attention: XXXXXXXXXX

September 17, 1998

Dear Sirs:

Re: Paragraph 60(j.1) of the Income Tax Act (the "Act")
Meaning of "Vested" Employer Contributions

This is in reply to your facsimile transmission of September 10, 1998, wherein you requested confirmation of your interpretation of clause 60(j.1)(ii)(B) of the Act. Your query relates to the phrase “years before 1989 in respect of which employer contributions under...a pension plan...of the employer...had vested in the retiree at the time of the payment” of the retiring allowance.

The situation you describe relates to an actual pension plan and members who were credited with service before July 1, 1975, but for which no contributions were made to the pension plan by the employer in respect of this service. We are unable to provide a binding opinion except in the context of an advance income tax ruling but can provide the following general comments.

Although you indicate that no employer contributions were made in respect of those years, you have stated that the liability associated with the funding of those benefits was likely paid through the pension plan’s surplus, or through positive pension plan experience, or the future (we presume you are referring to subsequent) contributions of the employer.

It is the Department’s view that the funding of those benefits which relate to property in the pension plan has its source in contributions made by the employer. Such funding is considered to be contributions for purposes of clause 60(j.1)(ii)(B) of the Act. Therefore, at the time of payments an employee is entitled to receive the benefits in respect of the pre-1975 years of employment, it is our view that employer contributions "had vested" and the amount eligible for a tax-deferred transfer to a registered retirement savings plan will be limited to $2,000 per year.

We trust our 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