21 October 1999 External T.I. 9915785 - PENSION ADJUSTMENT REVERSALS

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:

If the date a payment of termination benefits out of an RPP provision is delayed beyond the year in which the member terminates employment, must the member's PAR be calculated for the year the amount is paid or for the year the member ceased employment.

Position:

PAR is calculated for the year the termination benefits are paid.

Reasons:

A PAR is calculated when the member has no further rights to benefits. If the termination benefit has not been paid, it must follow that the member still has a benefit. Furthermore, the calculation of PAR requires a reduction of the amount otherwise determined by the amount of the termination benefit. Hence it can not be calculated before the termination benefit is paid.

The technical notes indicate termination "normally" occurs when the termination benefit is paid. The technical notes go on to say that if no termination benefit is payable, then termination occurs when the employment is terminated. This would not be the "normal" situation. The enquirer argued that the substantial concept and definition of termination is when your benefits cease to accrue. Such an interpretation does not allow full scope to PAR provisions.

XXXXXXXXXX 991578
W. C. Harding
October 21, 1999

Dear Sir:

Re: Determination of Pension Adjustment Reversals ("PARs")

This is in reply to your letter of May 21, 1999, in which you requested our confirmation that your PAR could be calculated in respect of 1998 although termination benefits were paid to you out of a pension plan in 1999.

Since your situation relates to the calculation of a PAR in respect of your termination of employment in 1998 your query must be directed to your local tax services office for a specific reply. However we can provide the following general comments which may or may not apply to your circumstances and which are not binding on the Department.

A PAR is calculated when the member of a registered pension plan (an "RPP") ceases to be a member of the pension plan and has no further rights to any benefits under the plan (other than a possible share of any pension surplus that may arise at a later date). A termination benefit in the form of a cash payment or a transfer of the commuted value of your pension benefit to a registered retirement savings plan or income fund is a benefit under an RPP. If a termination benefit has not been paid, it must follow that the member still has a right to a benefit. Accordingly a PAR cannot be calculated until such time as the benefit is actually paid. Furthermore, the calculation of a PAR requires a reduction of the amount otherwise determined by the amount of the termination benefit. Hence it can not be calculated before that amount is in fact paid.

The technical notes to the Income Tax Regulations on PAR indicate that a PAR is not determined until an individual terminates from a benefit provision of an RPP and that this ordinarily occurs when the individual has ceased to have any rights to benefits under the provision. It then explains that a termination normally occurs when the individual has received a lump sum payment. However it goes on to say that if no termination benefit is payable, then termination will be considered to occur when the individual's employment is terminated. This would be the exception to the "normal" or "ordinary" situation.

We trust this explanation is satisfactory to your needs.

Yours truly,

P. Spice
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate

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