18 May 1999 External T.I. 9831225 - RPP TRANSFERS

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:

Can an individual increase the amount that can be transferred from an RPP to another RPP and an RRSP by restructuring the transfer in either of two specific manners.

Position:

Probably not, but it is a question of fact. General information was provided on the RPP transfer rules and permissible distributions.

Reasons:

The file details a specific proposal and should be the subject of an advance ruling request. With respect to the first proposal to increase the eligible service using existing benefits, we cannot envision a plan that would provide for a decrease in an individual member’s benefits in order to fund additional service, but a request to the Registered Plans Division would be required by the RPP administrator. With respect to the second, to deem a portion of the benefit as a return of contributions, while the Act does not specifically address such a division of amounts transferred from a plan, such a transfer would probably not be available under the registration rules and would require a very unusual fact situation.

XXXXXXXXXX 		983122
W. C. Harding
Attention:  XXXXXXXXXX 

May 18 1999

Dear Sirs:

Re: Transfers of amounts from a Registered Pension Plan (RPP)

This is in reply to your letter of November 27, 1998, in which you asked for clarification of the provisions of the Income Tax Act (the “Act”) and the Income Tax Regulations (the “Regulations”) with respect to the transfer of amounts from an RPP to another RPP or to a registered retirement savings plan (“RRSP”).

As we understand your situation, an individual has left the employ of one employer for another and has requested his pension be transferred under some form of reciprocal agreement from the former employer’s RPP to the current employer’s RPP. The individual is not required to transfer his pension entitlement with the former employer and may remain as a member of the former employer’s RPP. However, if a transfer were to be made, under the terms of the two RPPs the amount that can be transferred into the current employer’s RPP is substantially less than the commuted value of the pension benefits in the RPP with the former employer. As a consequence there is an excess amount in the former employer’s RPP that would be paid to and included in the beneficiary’s income at the time of its payment, unless the amount could be viewed as a return of contributions so that a transfer could be made pursuant to subsection 147.3(6) of the Act. In addition, under the current employer’s RPP the employee may buy back one year of additional service not recognized by the former employer’s RPP. You have asked whether it is possible for the service to be credited in the former employer’s RPP before a transfer is made to the new employer’s RPP.

Written confirmation of the tax implications inherent in particular transactions are issued by this Directorate when the transactions are outlined in an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R3. Accordingly, since your letter deals with an actual proposal, we cannot provide any specific answers on a technical interpretation basis. However, we can provide the following general comments which are not binding on the Department but which may be of assistance.

Subsection 147.3(6) may apply to permit the transfer of a refund of contributions plus interest to an RRSP. However, this subsection does not in and of itself permit a plan to provide such a refund. This could only be done under the terms of the plan as registered. Whether an amount can be categorized as a refund of contributions will depend upon the terms of the plan as registered. We also make reference to the rules in paragraph 8502(d) of the Regulations regarding permissible distributions from an RPP. Specifically, subparagraphs 8502(d)(iii) and (iv) make reference to permissible distributions that involve a return of contributions, the former with regard to such payments to avoid revocation of the RPP and the latter with regard to such payments made pursuant to an RPP amendment that also reduces future contributions to the plan. Subparagraph 8502(d)(iv) appears, in our view, most closely aligned with the transfer permitted under subsection 147.3(6). The Department of Finance’s technical notes for this provision state, in part, “this subsection is intended to allow the transfer of such contributions (and interest) when a defined benefit RPP is amended to retroactively reduce or eliminate the requirement for members to make contributions.” Whether or not the refund of contributions envisaged by the taxpayer in this case meets these requirements is a question of fact, but in our view it would be unlikely that a transfer of plan assets could be subdivided in this manner.

On the second issue, it is our view that the terms of any particular RPP would have to permit a member to buy back the service in question and secondly the plan would have to allow the purchase of the additional service funded with amounts currently held in the plan. This would be a question of fact in both cases. However, we would not expect this would be an available option under the terms of most registered plans. Furthermore, any proposal to amend a plan to include such a provision would need to be referred to our registered plans division for their consideration.

We trust these comments will be of assistance.

Yours truly,

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