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 a supplementary retirement arrangement results in current taxation.
Position: No.
Reasons: Investing funds, which are not held in trust and that are available for the general creditors of an employer is not considered to be a taxable event. The arrangement can be regarded as a pension plan and, as such, these pension benefits are taxable when received.
XXXXXXXXXX
XXXXXXXXXX 3-983260
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1999
Dear Sirs:
Re: Advance Income Tax Rulings
XXXXXXXXXX
Supplemental Pension Arrangement
This is in reply to your letter of XXXXXXXXXX, with attachments wherein you requested an advance income tax ruling on behalf of the XXXXXXXXXX for a Supplemental Pension Arrangement. We also acknowledge the information provided by your facsimile submissions of XXXXXXXXXX, as well as during our various telephone conversations (XXXXXXXXXX).
DEFINITIONS AND ABBREVIATIONS
In this letter, unless otherwise expressly stated or the context otherwise requires:
"Act" means the Canadian Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as amended to the date hereof, and unless otherwise stated, every reference herein to a Part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act;
"Participant" means an employee who is beneficiary under the Proposed Plan, as this term is defined hereafter;
"Pension Plan" means the XXXXXXXXXX Pension Plan;
"Proposed Plan" means the XXXXXXXXXX Supplemental Pension Arrangement;
"Canemp" means XXXXXXXXXX;
"RCA" (or "retirement compensation arrangement") has the meaning assigned by subsection 248(1);
"RPP" (or "registered pension plan") has the meaning assigned by subsection 248(1);
"SDA" (or "salary deferral arrangement") has the meaning assigned by subsection 248(1).
RELEVANT FACTS
1. Canemp's address is XXXXXXXXXX.
2. Canemp's Tax Account Number is XXXXXXXXXX.
3. Canemp deals with the XXXXXXXXXX Tax Services Office and files its returns with the XXXXXXXXXX Tax Centre.
4. Canemp maintains an RPP for its employees under Revenue Canada registration number XXXXXXXXXX, the Pension Plan, which provides employees with pension benefits (the "Prescribed Benefits") in accordance with the Act. At retirement, Prescribed Benefits are equal to that which can be purchased by an employee and matching Canemp contributions on a money purchase basis (the "Variable Pension"). Additionally, the employee is entitled to a supplement (the "Guaranteed Pension"), if required, to ensure that the total pension is equal to the following:
XXXXXXXXXX.
5. The income tax rules applicable to RPPs restrict the amount of contributions that may be made to the Pension Plan. Because of this limit, Canemp will be restricted in the amount of contributions that it can make to the Pension Plan on behalf of higher income individuals.
PROPOSED TRANSACTIONS
6. The intended effective date of the Proposed Plan is XXXXXXXXXX.
7. The Proposed Plan will have the following terms:
(a) Subject to Canemp approval, each Canemp employee who contributes to the Pension Plan at any time after the effective date of the Proposed Plan will become a Participant as of the first day of the month in a calendar year in which the aggregate of the contributions by the Participant and by Canemp to the Pension Plan on that Participant's account for that calendar year equal or exceed limits prescribed under the Act.
(b) Under the terms of the Proposed Plan, each Participant will be entitled to benefits (the "Excess Benefits") that are the minimum guaranteed benefit under the Pension Plan without regard to the prescribed tax limits in excess of the Prescribed Benefits. The Excess Benefits of each Participant may be derived from two components: the Supplemental Account and the Excess Supplementary benefit which are discussed in 7(c) and (g) below respectively.
(c) Under the terms of the Proposed Plan, Canemp proposes to establish and maintain in respect of each Participant an account (the "Supplemental Account"). Every Participant's Supplemental Account will be credited for each month with notional contributions (the "Supplemental Credits") and will be adjusted for each month by the application of a rate of return (the "Adjustment Factor").
(d) Canemp will establish in respect of a Participant a Supplemental Credit for a month in which Canemp's contribution to the Pension Plan for that month for that Participant is reduced or eliminated as a result of the application of the maximum annual limit on the aggregate of such contributions by the Participant and Canemp prescribed under the Act.
(e) For purposes of 7(c) above, the amount of the Supplemental Credits for a month, as described in 7(d) above, will be the amount that Canemp would be required to contribute to the Pension Plan on behalf of the Participant for that month if the maximum annual limit on the aggregate of contributions to the Pension Plan by Canemp and the Participant did not apply, less the amount of any Canemp contributions to the Pension Plan with respect to that month on behalf of the Participant.
(f) For purposes of 7(c) above, the Adjustment Factor, including gains, losses and dividends, with respect to any month is the rate of return earned for that month on the investments described in 7(h) below net of the Proposed Plan's administrative expenses.
(g) Under the Proposed Plan, a Participant may also be entitled to an Excess Supplementary benefit. The Excess Supplementary benefit, if any, shall be payable in the same form as the pension payable from the Participant's Supplemental Account and will be calculated in the same manner as the Guaranteed Pension, but only with regard to benefits payable in excess of the prescribed tax limits. The amount of the Excess Supplementary benefit shall be adjusted annually by an amount equal to the adjustment applied to the Guaranteed Pension.
(h) Canemp will set aside and invest sums of money equal to the amount of Supplemental Credits for the month. These earmarked assets will continue to belong to Canemp and the Participants will not have any direct claims against the assets. In particular, the earmarked assets will not be held in trust for the benefit of Proposed Plan Participants and no assets of Canemp have been or will be set aside in the name of a particular Participant in respect of the Proposed Plan.
(i) All the assets relevant to the Proposed Plan as described in 7(h) above will be available for the general creditors of Canemp.
(j) Proposed Plan Participants will be provided with statements each year setting out the amounts added to and deducted from their Supplemental Accounts.
(k) A Participant's Account will not entitle the Participant or the Participant's designated beneficiary after the death of the Participant, as the case may be, to any right to receive payments under the Proposed Plan and Canemp shall not be under an obligation to provide any benefits under the Proposed Plan in respect of a Participant before the earliest of the Participant's date of retirement (including early retirement), date of termination of employment, or date of death.
(l) At retirement, the balance of a Participant's Supplemental Account shall be converted to a pension amount in the same way the Participant's money purchase component account, the Variable Pension, under the Pension Plan is converted to a pension. The form of the pension amount so converted shall be identical to the form of pension under the Pension Plan.
(m) If a Participant terminates before age 55 and elects to receive monthly benefits from the Pension Plan, the Participant will be entitled to receive a monthly benefit under the Proposed Plan at the same time, and in the same form, as benefits under the Pension Plan. Notwithstanding the foregoing, if the Participant who terminates employment with Canemp before age 55 elects to transfer the Participant's entitlement under the Pension Plan to a registered retirement savings plan as permitted under the Pension Plan, the Participant will be entitled to receive a monthly benefit under the Proposed Plan at the same time, and in the same form, as benefits under the Pension Plan as if the Participant had not made such an election.
(n) If a Participant dies before retirement or termination of employment, benefits payable under the Proposed Plan to the Participant's designated beneficiary will be determined in the same manner and form of the Participant's Variable Pension under the Pension Plan.
(o) A Participant's Supplemental Account will continue to be maintained until all payments to which the Participant or the Participant's designated beneficiary after the participant's death, as the case may be, is entitled have been made.
(p) Any Excess Supplementary benefit of a Participant shall be payable over and above the Participant's entitlement under the Supplemental Account.
(q) The Proposed Plan will be administered by Canemp in accordance with the laws of the Province of XXXXXXXXXX.
(r) Canemp may at any time supplement, modify, amend or terminate the Proposed Plan, provided that no such supplementation, modification, amendment or termination shall affect the entitlement of any Participant accrued under the Proposed Plan prior to the effective date of such amendment.
PURPOSE OF THE PROPOSED TRANSACTIONS
8. Canemp proposes to establish the Proposed Plan to provide pension benefits to its Vice-presidents and XXXXXXXXXX in addition to those that will be available under the Pension Plan.
9. To the best of your knowledge and that of Canemp none of the issues in respect of which rulings are herein requested is:
(a) in an earlier return of Canemp or a related person,
(b) being considered by a tax services office or tax centre in connection with a previously filed tax return of Canemp,
(c) under objection by Canemp or a related person,
(d) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, and
(e) the subject of a ruling previously issued by the Income Tax Rulings and Interpretations Directorate.
10. To the best of your knowledge and Canemp' s knowledge, this request for an advance income tax ruling contains all the relevant facts and provides a full and fair presentation of the proposed arrangement in respect of the rulings sought.
RULINGS GIVEN
Provided that the statement of facts and proposed transactions are correct and constitutes a complete disclosure of all relevant facts and proposed transactions and that the transactions are carried out in the manner described in paragraphs 7(a) through (p) above, we rule that:
A. The Proposed Plan will not constitute an SDA.
B. The Proposed Plan will not constitute an RCA and consequently the provisions of Part XI.3 will not be applicable with respect to the Proposed Plan.
C. Subsection 12(4) will not apply to a Participant to require any amount to be included in computing the Participant's income for a year as interest with respect to the balance in the Participant's Account.
D. Each payment made by Canemp to a Participant or the Participant's designated beneficiary, as the case may be, under the Proposed Plan, will be included in the income of the recipient in the year it is received as a superannuation or pension benefit pursuant to subparagraph 56(1)(a)(i).
E. No amount will be included in the income of a Participant under subsection 5(1), paragraph 6(1)(a) or paragraph 56(1)(a) as a result of, in and by itself, the Participant's participation in the Proposed Plan, other than those described in Ruling D above.
These rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R3 of December 30, 1996, issued by Revenue Canada Taxation, and are binding provided the proposed transactions are completed and effective 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
3
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.../cont'd
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