14 December 2011 External T.I. 2011-0418171E5 - Philippine Pension Transfer to RRSP

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.

Principal Issues: Can a lump sum payment made on behalf of a Canadian resident from a Philippine pension plan in respect of non-resident services be transferred to an RRSP under subparagraph 60(j)(i) of the Act?

Position: Yes, provided the taxpayer does not claim a deduction under subparagraph 110(1)(f)(i) for the treaty-exempt income.

Reasons: Satisfies the conditions in subparagraph 60(j)(i). In particular and in contrast to other provisions of the Act that preclude their application where the amount "is deductible" or "may be deducted" under another provision, subparagraph 60(j)(i) only precludes its application where the amount "is deducted". The subparagraph 110(1)(f)(i) deduction is a permissive deduction.

XXXXXXXXXX 						2011-041817
							D. Wurtele
December 14, 2011

Re: Philippine pension transfer to RRSP

This is in response to your letter that we received on August 24, 2011 XXXXXXXXXX, on whether a lump sum payment from a Philippine pension plan is eligible for transfer to a registered retirement savings plan ("RRSP") under paragraph 60(j) of the Income Tax Act (the "Act"). After discussion, it was agreed that we would provide only general comments.

We understand the relevant facts to be as follows: XXXXXXXXXX previously resided, and was employed by an affiliate of Canco, in the Philippines. During that time, the individual participated in his employer's non-contributory defined benefit pension plan. The individual was subsequently transferred to Canco and is now resident of Canada. XXXXXXXXXX You are now investigating whether it would be possible for the pension funds to be transferred to the employee's RRSP.

Our Comments

The Canada Revenue Agency's general views regarding the transfer of amounts from non-registered pension plans to Canadian registered plans are found in Interpretation Bulletin IT-528 Transfers of Funds Between Registered Plans. Paragraph 26 of IT-528 discusses the application of subparagraph 60(j)(i) of the Act, which allows a special deduction for a pension benefit received by an individual from a non-registered pension plan (such as a foreign pension plan) that is transferred to the individual's RRSP. The deduction is over and above the individual's regular RRSP deduction limit.

The following conditions have to be satisfied for an individual to deduct an amount under subparagraph 60(j)(i) of the Act in computing their income for a taxation year:

• The foreign plan must constitute a superannuation or pension plan for purposes of the Act. The determination of whether a plan is a superannuation or pension plan is a question of fact. Generally, a plan will be considered to be a superannuation or pension plan where contributions have been made to the plan by or on behalf of an employer or former employer of an employee in consideration for services rendered by the employee and the contributions are used to provide an annuity or other periodic payment on or after the employee's retirement.
• The pension benefit must not be part of a series of periodic payments. Only lump sum payments are eligible for the deduction.
• The pension benefit must be attributable to services rendered by the individual (or the individual's spouse or common-law partner) to an employer in a period throughout which the individual was not resident in Canada.
• The pension benefit must be included in the individual's income for the year and, if any part of the pension benefit is exempt from tax in Canada because of an income tax treaty, the individual must not claim an offsetting deduction for the treaty-exempt part under subparagraph 110(1)(f)(i) of the Act in computing their taxable income.

In this regard, benefits paid from a foreign pension plan are generally required to be included in the recipient's income in the year received under paragraph 56(1)(a) of the Act and, pursuant to Article XVIII(1) of the Canada-Philippines Income Tax Convention, pensions arising in the Philippines that are paid to a Canadian resident are taxable only in the Philippines. In other words, a Canadian resident who receives a pension benefit from a Philippine pension plan would be required to include the benefit in their income, but would be entitled to deduct an offsetting amount from their taxable income. Consequently, in order to take advantage of the special RRSP transfer provision in subparagraph 60(j)(i) of the Act, the individual must not claim the deduction for the treaty-exempt income.

• The individual must make the RRSP contribution in the year the pension benefit is received or within 60 days after the end of that year. There is no requirement that the RRSP contribution be made by way of a direct transfer from the foreign pension plan. In addition, the individual must designate the RRSP contribution as a transfer in their personal income tax return for the year. The amount of the deduction is limited to the lesser of the amount designated and the amount of the benefit included in income.

We trust that these comments will be of assistance.

Yours truly,

Mary Pat Baldwin, CA
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch