5 November 1999 External T.I. 9925805 - SPOUSAL BENEFITS PER S 13.1 OF PSSA

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: Will income tax be reduced in accordance with reduced amount of superannuation received by virtue of application for spousal benefits?

Position: Yes

Reasons: Wording of ITA 56(1)(a)

XXXXXXXXXX 992580
S. E. Thomson
November 5, 1999

Dear XXXXXXXXXX:

Re: Taxation of reduced superannuation benefits

This is in reply to your letter of September 21, 1999 which was forwarded to us by the Laval, Quebec Tax Services Office.

In your letter, you outline that you are now retired, plan to marry, and are considering applying for spousal benefit coverage under Section 13.1 of the Public Service Superannuation Act (PSSA). In exchange for spousal benefits after your death, your current benefits will be reduced. You have asked us to confirm that your personal income tax will also be reduced, to reflect the reduced amount of superannuation.

Confirmation of how provisions of the Income Tax Act (the "Act") will apply to a specific transaction proposed by a taxpayer can only be provided in the context of an advance income tax ruling. In that regard, we enclose a copy of Information Circular IC 70-6R3 "Advance Income Tax Rulings". However, we are able to provide our general comments on the relevant provisions of the Act. Please note that these comments are not binding on the Canada Customs and Revenue Agency.

Pursuant to paragraph 56(1)(a) of the Act, superannuation or pension benefits are taxable to the recipient in the year in which the benefits are received. Furthermore, in our opinion, where benefits are paid to the surviving spouse as outlined above, subsections 56(2) and 56(4) of the Act will not apply to tax such benefits in the hands of the PSSA member.

In summary, where you receive a lesser amount of benefits in a year, it is the lesser amount that will be taxed to you in that year. Benefits received by your spouse after your death will be taxable to her in the year in which she receives the benefits.

We trust the above will be of assistance.

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