19 May 1999 External T.I. 9902345 - REGULATION 8504(6) PRE-1990 BENEFITS

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: Unfair application of Regulation 8504(6)

Position: We must administer the Act as it is written.

Reasons: Explained the law and referred taxpayer to finance

XXXXXXXXXX 990234
M. P. Sarazin
May 19, 1999

Dear Sir:

Re: Limits Regarding Past Service Entitlements

This is in reply to the facsimile that was sent to our Toronto North Tax Services Office by XXXXXXXXXX, wherein you asked XXXXXXXXXX to seek clarification regarding the limits imposed with respect to the purchase of pre-1990 service under a registered pension plan (“RPP”).

In XXXXXXXXXX, you paid $XXXXXXXXXX to your employer’s RPP to acquire an additional XXXXXXXXXX years of credited service in respect of your previous employment in business and industry. Subsequent to retiring in XXXXXXXXXX, you were advised by the administrator of your employer’s RPP that your pension would be reduced because the Income Tax Act (the “Act”) and Income Tax Regulations (the “Regulations”) limit the amount of retirement benefits that may be provided in respect of a particular year before 1990 to 2/3 of the defined benefit limit for the year in which the benefits commence to be paid (or $1,150, if greater). You believe that amendments to the Act and Regulations should not have been passed after you acquired the service with an effective date prior to the date that you acquired such service. You also believe that you should have been informed of the pension reduction prior to your retirement.

Comments

Federal pension reform was initially proposed in the May 23, 1985 federal budget. The provisions that were enacted to limit the amount of retirement benefits that may be provided in respect of a particular year before 1990 to 2/3 of the defined benefit limit for the year in which the benefits commence to be paid (or $1,150, if greater) were part of these proposals. These amendments were enacted December 23, 1991 and were applicable after 1988. The proposed pension changes had been in the public domain for a substantial period of time and, as such, pension plans were or should have been aware of these proposals.

We are not in a position to comment on the dealings you have had with the administrator of your employer’s RPP, other than to state that the administrator is required to manage the RPP in accordance with the conditions contained in the Act and Regulations.

Finally, we wish to note that Revenue Canada is required to administer the Act and Regulations as they are written, while the Department of Finance is responsible for determining tax policy and drafting income tax legislation which is ultimately approved and passed into law by Parliamentary process. The existing legislation reflects the general policies behind pension reform as it relates to tax deferred savings aimed at providing Canadians with post-retirement income. Any concerns relating to tax policy matters such as the taxation of retirement income, the interaction of Canada Pension Plan benefits with RPP benefits and the claw back of Old Age Security benefits should thus be directed to the Department of Finance.

We trust these comments will be of assistance.

Yours truly,

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