28 June 1999 External T.I. 9906755 - REPAYMENT TO RPP FROM RRSP

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: Are amounts repaid to a pension plan which were transferred to an RRSP on withdrawal from the plan deductible in computing the taxpayer’s income? Is the interest deductible where money is borrowed to make an RPP contribution?

Position: Not if transferred back from RRSP. No.

Reasons:. The transfer is governed by subsection 146(16). There is no provision to allow for interest deductibility on such payments.

XXXXXXXXXX 990675
M. P. Sarazin
June 28, 1999

Dear Sir:

Re: Deductibility of payments to a registered pension plan (“RPP”)

This is in reply to your letter dated March 8, 1999, wherein you ask whether you can claim a deduction for the amounts that you are required to pay in respect of a lump-sum pension benefit repayment.

In your letter you describe a scenario where you were dismissed from your job and withdrew your pension entitlements from your employer’s RPP and transferred this amount to a locked-in registered retirement savings plan (“RRSP”). Subsequently, you were reinstated in your former job. In order to reinstate your pension benefit entitlements under your employer’s RPP you are required to repay the original withdrawal from the RPP plus an amount referred to by your employer as “statement interest”. It appears that the amount in your locked-in RRSP will be transferred back to your employer’s RPP and that since this amount is not sufficient for this purpose you will be required to personally make an additional contribution to the RPP and will borrow money for this purpose.

Comments

In your letter you have outlined an actual fact situation. The review of such transactions generally falls within the responsibility of Tax Services Offices and it is the practice of this Department not to comment on such transactions without a review of all of the relevant facts. However, we can provide you with the following general comments.

The transfer from your employer’s RPP to your locked-in RRSP we presume was made in accordance with subsection 147.3(4) of the Income Tax Act (the “Act”), such that you were not required to include this amount in income and were not entitled to any deduction from income for the amount transferred to your locked-in RRSP. Similarly, the transfer from your locked-in RRSP to your employer’s RRP will not result in any income inclusion or deduction to you if it is undertaken in accordance with subsection 146(16) of the Act.

To the extent that an additional contribution is necessary to meet the amount required to buy back the pension service in your employer’s RPP (i.e. the transfer from your RRSP is insufficient for this purpose), that amount may be deductible under paragraph 8(1)(m) of the Act if the contribution is made to the RPP in accordance with the plan as registered. You will need to contact the administrator of the RPP to determine if this is the case.

Any interest on money borrowed for a contribution to an RPP in this scenario would not be deductible for income tax purposes.

We trust these comments will be of assistance.

Yours truly,

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