5 July 1999 External T.I. 9907225 - EARLY RETIREMENT, PREVIOUS SERVICE

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 employment with previous employer be acquired under existing RPP?

Position: Question of fact

Reasons: The terms of the RPP will dictate whether it is possible.

XXXXXXXXXX 990722
M. P. Sarazin
July 5, 1999

Dear Sir:

Re: Early Retirement - Pension Contributions

This is in reply to your letter dated March 8, 1999 and addressed to XXXXXXXXXX, which was sent to our Toronto North Tax Services Office, wherein you asked XXXXXXXXXX to seek clarification regarding your inability to purchase four years of pre-1990 service with a former employer under your current employer’s registered pension plan (“RPP”).

From 1978 until 1982, you were employed by a provincially funded hospital in XXXXXXXXXX. When you left the hospital’s employ, you received a refund of your pension contributions which were transferred to your RRSP. Under your current RPP, you may be able to retire early if you are allowed to buy back the four years of service with your former employer in your current employer’s RPP. Further, you wish to use the funds in your RRSP to buy back these years of service. The administrator of your employer’s RPP has advised you that the four years of service cannot be bought under the RPP because of certain Revenue Canada guidelines. However, you have not described in detail what guidelines the administrator of your employer’s RPP is referring to.

Comments

If you are entitled to buy back years of service in your employer’s RPP (see below), you are entitled to transfer the funds in your RRSP, on a tax-free basis, to an RPP for your benefit. This if provided for under subsection 146(16) of the Income Tax Act (the “Act”). Further, paragraph 8502(b) of the Income Tax Regulations (the “Regulations”) lists the permissible contributions that can be made to an RPP. We note that subparagraph 8502(b)(iv) allows for amounts to be transferred to an RPP in accordance with subsection 146(16) of the Act.

The more fundamental question, however, is whether or not you can buy back prior service with another employer in your current employer’s RPP. Unfortunately, without a review of all of the facts and the terms of your employer’s RPP, we cannot make this determination. To provide you some assistance in this regard we have enclosed a copy of Pension Reform Newsletter 92-8R, dated July 12, 1993. This newsletter explains what years of service may be counted for benefits to be provided by an RPP. We suggest that you clarify with the administrator of your employer’s RPP exactly what Revenue Canada guidelines are preventing you from buying back these years of service. In addition, the administrator of your employer’s RPP can contact the Registered Plans Division of Revenue Canada by calling 613-954-0419 to confirm whether or not the contents of this newsletter apply to your particular situation.

We trust these comments will be of assistance.

Also, we note that a request was made to forward a copy of this letter to your Member of Parliament (“MP”). However, since your MP has not been authorized to obtain taxpayer information about you we have not forwarded this letter as requested.

Yours truly,

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