17 January 2000 External T.I. 9929895 - PRE 1946 PENSION 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:?

An individual wants to know why his pension income is tax free?

Position:

Based on the limited facts provided it appears the pension is tax -free because of certain pre-1946 provisions of the Income War Tax Act which were carried over to the current Act.

Reasons:

Section 57 carries over an elective provision from the Income War Tax Act which exempts certain pension receipts from taxation.

XXXXXXXXXX 		1999-000790
W. C. Harding
January 17, 2000

Dear XXXXXXXXXX:

The Honourable Paul Martin, P.C., M.P. Minister of Finance, wrote to you in September, 1999, in respect of your request for information on the taxation of your XXXXXXXXXX pension. At that time he advised that he had forwarded your letter to Revenue Canada (now the Canada Customs and Revenue Agency) for reply. Mr. Michael Cronier of the Registered Plans Division also spoke to you about the issue and referred your letter to us for reply.

As we understand the situation, you are now receiving a pension under the XXXXXXXXXX pension plan and you have noted that the benefits you are receiving that are in respect of your employment with XXXXXXXXXX prior to 1946 are not taxable and that you were not allowed to deduct any of the contributions you made under the plan prior to 1946. You have asked why this would be.

We do not have the particulars of the XXXXXXXXXX plan at hand. However, it would appear that the amounts in question are not taxable as a result of the continuation of pre-1946 rules relating to the taxation of pension income. Prior to 1946, the trustees of pension funds could elect to be taxed on a pension plan's investment income as it was earned or to receive it tax free. If the trustees elected to be taxed on the income, the employees covered by the plan were then permitted to deduct their annual contributions on their personal tax returns. However they were then required to report the full amount of any pension received on retirement as taxable income. In the alternative, if the trustees of a plan elected to be exempt from taxation on the plan's investment income, the employees were not entitled to deduct any of their contributions but would then receive the pension benefits free of any tax. It would appear to us that the XXXXXXXXXX pension falls into this latter category.

In 1946, the provisions for the taxation of pensions were changed such that an election was no longer available to the pension trustees. Thereafter the pension trusts became non-taxable on all of their income, all employee contributions became deductible within limits determined from time to time, and all pension benefits became taxable as they were received. However to assure fairness, the exemption from taxation of pension benefits earned on contributions made before 1946 were continued within limits described in the current version of the Income Tax Act. Accordingly, the part of a pension earned prior to 1946 may still be tax-free on receipt while the portion earned after 1946 will be taxable.

We trust this explanation is satisfactory to you.

Yours truly,

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

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