16 November 1999 External T.I. 9926575 - EMPLOYER RPP CONTRIBUTIONS PAID BY EMPLOYEE

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: Where an employee makes both the employee's and the employer's contributions to an RPP (generally to buy back a period of leave or past service) will the employee get a deduction for an amount calculated under 60(j.1)(ii)(B) on the transfer of a retiring allowance to an RRSP?

Position: Not in general.

Reasons: This position was taken in 1986 after consultation with our legal advisors and is based on our view that the legislation only intends to increase the 60(j.1) deduction for those years that the person does not have concurrent pension plan coverage.

XXXXXXXXXX 		992657
W. C. Harding
Attention:  XXXXXXXXXX 

November 16, 1999

Dear Sirs:

Re: Transfer of retiring allowances to RRSPs

This is in reply to your letter of September 30, 1999, addressed to Ms Lucie Bisson, Executive Coordinator of the Policy and Legislation Branch and referred to us for reply, in which you request clarification of the background to a position taken by this directorate.

You indicated in your letter you tried to receive this information directly from us but were unsuccessful. However, we have no record of your written request for this information. We therefore assume that your request was made by telephone. If this is the case, we would like to note that the background to the interpretation would not have been readily available for reply by telephone by a Rulings officer. Please note that you may write for detailed information in accordance with the comments made under the heading Income tax rulings and interpretations directorate telephone inquiry service in our publication Income Tax Technical News No. 17 (available on the internet at http://www.ccra-adrc.gc.ca/E/pub/tp/news17et/news17e.txt.html).

Clause 60(j.1)(ii)(B) of the Income Tax Act (the "Act") permits an employee who has transferred a retiring allowance to an RRSP to claim a deduction of up to $1,500 per year for each year of service prior to 1989, other than service in respect of which employer contributions under a pension plan of the employer had vested in the employee at the time of the payment of the retiring allowance. Often an employee may buy back prior years service or can include a leave of absence from employment in calculating the years of pensionable service. However, the employee may be required to contribute both the employer's and the employee's contributions under the pension plan in respect of this service. In these situations the Directorate takes the position that the portion of the contributions paid by the employee on behalf of the employer is, in fact, the employer's contributions made on the employer's behalf by the employee. Accordingly the employee cannot take advantage of the additional deduction provided by clause 60(j.1)(ii)(B) of the Act in respect of the period.

This position was made public in 1986 after receipt of legal advice. It is based on our understanding that the intent of the legislation is to allow an employee that is not covered by a pension plan to contribute the additional $1,500 to an RRSP for each year of service before 1989 so as to place the employee in a position which is roughly equivalent with an employee who has a pension covering those years. Accordingly where an employee has coverage under a pension plan, it is our view that allowing the additional deduction of $1,500 is contrary to the apparent intent of the legislation.

We trust this explanation of our position is satisfactory to you.

Yours truly,

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

c.c.: Ms Lucie Bisson

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