1999 Ruling 9922793 - SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN

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: Supplemental retirement arrangement (unfunded pension plan)

Position: Not SDA, RCA or EBP

Reasons: Not funded; salary deferral purpose not met

XXXXXXXXXX 992279

Attention: XXXXXXXXXX

XXXXXXXXXX, 1999

Dear XXXXXXXXXX:

Re: XXXXXXXXXX (the "University")
Registered Charity Number XXXXXXXXXX
Supplemental Retirement Arrangement ("SRA")

This is in reply to your letter of XXXXXXXXXX where you request an advance income tax ruling on behalf of the University. We also acknowledge the information provided during our various telephone conversations ( XXXXXXXXXX).

Our understanding of the facts and the proposed transactions is as follows:

FACTS

1. The University is a corporation without share capital created under the XXXXXXXXXX. It is a registered charity exempt from income tax under section 149 of the Income Tax Act (the "Act"). Its address is XXXXXXXXXX. It is served by the XXXXXXXXXX Tax Services Office, and the XXXXXXXXXX Tax Centre.

2. The University sponsors a defined benefit pension plan known as the XXXXXXXXXX (the "Registered Plan") for employees as outlined in your letter. The Registered Plan is a registered pension plan within the meaning of the Act, and its registration number is XXXXXXXXXX.

3. The Registered Plan provides a lifetime pension equal to, for each year of Credited Service in the plan, (a) XXXXXXXXXX% of their Final Average Earnings (as defined therein) up to the latest three-year average of the Yearly Maximum Pensionable Earnings (YMPE) for purpose of the Canada Pension Plan ("Average YMPE") plus (b) XXXXXXXXXX % of their Final Average Earnings in excess of the latest three-year average of the Average YMPE.

4. Notwithstanding the entitlements as set out in 3 above, the maximum annual defined benefit payable to a retired member under the terms of the Registered Plan cannot exceed $XXXXXXXXXX per year of service or XXXXXXXXXX% of the average of the member's highest indexed average Compensation (as defined under the Act) times Credited Service, or such greater limit as provided under the Act. As a result of these limitations, faculty members currently earning in excess of approximately $XXXXXXXXXX per year will not be entitled to any pension benefits in respect of those excess earnings. Approximately XXXXXXXXXX University employees are currently subject to these limitations.

PROPOSED TRANSACTIONS

5. The University is proposing to implement the SRA which would provide pension benefits in excess of the limits under the Act described in paragraph 4 above, and would have the following attributes:

a) The pension benefit payable under the SRA will be calculated as the amount determined under the following formula:

		benefit payable = A - B

where:

A is the annual defined benefit pension benefit that would be payable as described in 3 above and, in greater detail, in your letter to us; and

B is the annual defined benefit pension benefit payable under 4 above.

6. In the event of the member's retirement, death or disability, the benefits payable under the SRA would be paid at the same time and in the same form as benefits payable under the Registered Plan. However, in the case of termination of employment prior to early retirement age, any payment of the commuted value of benefits to which the member would be entitled under the SRA would be paid in the form of a lump sum (i.e., no transfer of those amounts to an RRSP would be permitted). The University reserves the right to commute the payment of small amounts.

7. Since it is a charitable organization, the University's financial accounting statements are prepared in accordance with generally accepted accounting principles, and are maintained in accordance with the principles of fund accounting. For financial accounting purposes, the Board of XXXXXXXXXX of the University will from time to time appropriate funds out of the University's operating surplus which are to be set aside as a "fund for a specific purpose" in respect of its obligations under the SRA. The amount to be appropriated to such fund shall be determined based on actuarial advice as to the University's liabilities under the SRA. However, the assets appropriated to such fund:

i.) shall not constitute trust property;

ii.) will be available to satisfy the claims of the University's creditors, if necessary;

iii.) may be applied to any other purpose that the University may determine from time to time;

iv.) shall be commingled with other assets of the University; and

v.) shall not be subject to the direct claim of any members of the SRA.

8. While the University intends that the SRA would be ongoing, it reserves the right to discontinue the plan should the provision of the Act or any other legislation be amended or interpreted so as to require the termination, suspension or material alteration of the SRA.

PUROSE OF THE PROPOSED TRANSACTIONS

9. The purpose of establishing the SRA is to provide supplementary pension benefits to members over and above those that would be permitted under the Registered Plan.

OTHER INFORMATION

10. To the best of your knowledge and the knowledge of the University, none of the issues relevant to the ruling being requested is:

a) in an earlier return of the University or a related person,

b) is being considered by a tax services office or tax centre in connection with a previously filed tax return of the University or a related person,

c) under objection by the University or a related person,

d) before the courts or, if a judgement has been issued, the time limit for appeal to a higher court has not expired, or

e) the subject of a ruling previously issued to the University by the Directorate.

RULING GIVEN

Provided that the above statement of facts and description of the proposed transactions are correct and constitute a complete disclosure of all the relevant facts and terms of the proposed transactions, and that the SRA is established in the manner described above, we rule as follows:

A. The SRA will not constitute a "salary deferral arrangement" as defined in subsection 248(1) of the Act;

B. The SRA will not constitute a "retirement compensation arrangement" as defined in subsection 248(1) of the Act;

C. Neither subsection 5(1) nor paragraph 6(1)(a) of the Act will apply to include any amount in the income of a member of the SRA solely as a result of his or her participation in the SRA;

D. Amounts received by members, their spouses, or beneficiaries, as the case may be, from the SRA shall be included in income in the year of receipt as a superannuation or pension benefit pursuant to subparagraph 56(1)(a)(i) of the Act; and

E. Subsection 12(4) shall not apply to a member of the SRA to require any amount to be included in computing the member's income for a year as interest in respect of any entitlements the member may have under the SRA.

The above advance income tax ruling, which is based on the Act in its present form and does not take into account any proposed amendments thereto, is given subject to the limitations and qualifications set forth in Information Circular 70-6R3 dated December 30, 1996, issued by Revenue Canada, and is binding upon the Department provided the proposed SRA is implemented on or before XXXXXXXXXX.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate