2010 Ruling 2009-0342511R3 - Indirect transfer of surplus between RPPs

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: Will a proposed distribution of surplus to an insolvent employer from one of its pension plans, and an immediate corresponding contribution by the employer to another of its pension plans, be includable and deductible in computing the employer's income?

Position: 1.Yes; 2. Yes

Reasons: 1. The surplus distribution will be received by the employer and thus includable in the employer's income under ITA 56(1)(a)(i).
2. The contribution satisfies the conditions in ITA 147.2(1) to be deductible: (i) the contribution will be made by the employer to an RPP in respect of the employer's former employees immediately upon receipt of the surplus distribution; (ii) the Registered Plans Directorate confirmed that the contribution will be an eligible contribution in accordance with ITA 147.2(2); and (iii) the contribution is to fund a wind up deficiency relating to benefits provided for service before the wind-up of the plan in XXXXXXXXXX .

XXXXXXXXXX 							009-034251	

XXXXXXXXXX , 2010

Dear XXXXXXXXXX :

Re: Advance Income Tax Ruling Request
XXXXXXXXXX ("the Taxpayer")

This is further to your request that we resume consideration of your request for an advance income tax ruling on behalf of XXXXXXXXXX . We also acknowledge the additional information provided in your correspondence and during various telephone conversations (XXXXXXXXXX ).

You have advised us that, to the best of your knowledge and that of the Interim Receiver, none of the issues involved in the ruling request is:

(i) in an earlier tax return of the Taxpayer or a related person;
(ii) being considered by a tax services office or a tax centre in connection with a tax return already filed by the Taxpayer or a related person;
(iii) under objection by the Taxpayer or a related person;
(iv) before the courts, or
(v) the subject of a ruling previously issued by the Directorate.

Our understanding of the relevant definitions, facts, proposed transactions and their purpose is as follows:

Definitions

(a) "Act" means Income Tax Act, R.S.C. 1985 (5th Supp.) c.1 as amended from time to time, and unless otherwise stated, every reference herein to a part, section, subsection, paragraph, subparagraph or clause is a reference to the relevant provision of the Act;

(b) "Administrator" means XXXXXXXXXX , acting in its capacity as administrator of the XXXXXXXXXX Plan and the XXXXXXXXXX Plan;

(c) "BIA" means the Bankruptcy and Insolvency Act, R.S.C. 1985, c.B-3, as amended;

(d) "CCAA" means the Companies Creditors' Arrangement Act, R.S.C. 1985, c.C- 36, as amended;

(e) "Committee" means the XXXXXXXXXX ;

(f) "Company" means XXXXXXXXXX .;

(g) "CRA" means Canada Revenue Agency;

(h) XXXXXXXXXX ;

(i) XXXXXXXXXX

(j) XXXXXXXXXX

(k) XXXXXXXXXX

(l) XXXXXXXXXX

Facts

1. XXXXXXXXXX

2. XXXXXXXXXX

3. As at the date of the Interim Receiver's appointment, the Company was the sponsor of the XXXXXXXXXX Plan and the XXXXXXXXXX Plan. For purposes of the XXXXXXXXXX , the XXXXXXXXXX Plan was terminated as at XXXXXXXXXX . As at the wind-up date, the XXXXXXXXXX Plan had a surplus (the "Surplus"). For purposes of the XXXXXXXXXX , the XXXXXXXXXX Plan was terminated as at XXXXXXXXXX . As at the wind-up date, the XXXXXXXXXX Plan had a solvency deficiency. All members of the XXXXXXXXXX Plan are former employees of the Company.

4. XXXXXXXXXX

5. XXXXXXXXXX

6. XXXXXXXXXX

7. XXXXXXXXXX

8. XXXXXXXXXX

9. XXXXXXXXXX

10. XXXXXXXXXX

11. XXXXXXXXXX

12. In an actuarial opinion (the "Actuarial Opinion") dated XXXXXXXXXX , the actuary for the XXXXXXXXXX Plan advised that the wind up deficiency in the XXXXXXXXXX Plan is $XXXXXXXXXX as at XXXXXXXXXX . The actuary recommended that, if the Company were to fully fund the XXXXXXXXXX Plan, a contribution in the amount of $XXXXXXXXXX be made to the XXXXXXXXXX Plan. The actuary stated that the Actuarial Opinion was determined using assumptions and methods that were appropriate and in accordance with generally accepted actuarial practice.

13. In a letter dated XXXXXXXXXX , the Registered Plans Directorate of the CRA approved the actuary's recommendation contained in the Actuarial Opinion and advised that contributions made by the Company to the XXXXXXXXXX Plan in accordance with the actuary's recommendation will be eligible contributions according to subsection 147.2(2) of the Act, provided all other requirements of that subsection are satisfied and the approval has not been cancelled.

Proposed Transactions

14. The XXXXXXXXXX Amount will be paid from the XXXXXXXXXX Plan to the Company.

15. The Company will immediately make a contribution of an amount equal to the XXXXXXXXXX Amount (the "XXXXXXXXXX Plan Contribution") to the XXXXXXXXXX Plan in respect of its former employees.

Purpose of the Proposed Transactions

16. The purpose of the proposed transactions is to provide for a portion of the surplus in the XXXXXXXXXX Plan to be used to offset a portion of the deficit in the XXXXXXXXXX Plan.

V. Rulings Given

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, we rule as follows:

A. The Company will be required to include the XXXXXXXXXX Amount in computing its income for the taxation year in which the XXXXXXXXXX Amount is received by the Company from the XXXXXXXXXX Plan pursuant to subparagraph 56(1)(a)(i) of the Act.

B. Subject to the conditions, set out in the letter of the Registered Plans Directorate dated XXXXXXXXXX and referred to in paragraph 13 above, being satisfied at the time of the XXXXXXXXXX Plan Contribution, the Company will be entitled to deduct the XXXXXXXXXX Plan Contribution in computing its income for the taxation year in which it is paid by the Company to the XXXXXXXXXX Plan pursuant to subsection 147.2(1) and paragraph 20(1)(q) of the Act.

C. SubCo will not be required to include the XXXXXXXXXX Amount in computing its income.

These rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R5 issued on May 17, 2002, and are binding on the CRA, provided that the Proposed Transactions are completed on or before XXXXXXXXXX . The rulings are based solely on the facts set out in this letter. Facts in the documents submitted in connection with your ruling request that are not set out in this letter do not form part of the facts on which this ruling is based.

Yours truly,

for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch