2 July 2008 External T.I. 2008-0280831E5 - DPSP - Vested Amounts

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: Are amounts already paid to an employee from a DPSP, considered to be vested at the time a retiring allowance is paid to the employee?

Position: Yes

Reasons: The legislation is clear and also the CRA position is reflected in paragraph 22(e) of IT-337R4.

								2008-028083
XXXXXXXXXX 							Bruce Hartt
(613) 948-5273
July 2, 2008

Dear XXXXXXXXXX :

Re: Transfer of a Retiring Allowance

This is in response to your letter of June 9, 2008 and our phone call on June 26, 2008 (Sarazin/Hartt/XXXXXXXXXX ), wherein you requested our comments on the interpretation of clause 60(j.1)(ii)(B) of the Income Tax Act ("Act") and paragraph 22(e) of Interpretation Bulletin IT-337R4 Retiring Allowances. In particular, you requested our comments on how clause 60(j.1)(ii)(B) of the Act and paragraph 22(e) of IT-337R4 would apply to a situation where employees who had participated in a deferred profit sharing plan ("DPSP") in which the employer contributions had vested and were paid out. You indicated to us that the affected employees will be receiving a retiring allowance as a result of the facility closing and would like to transfer the maximum amount possible to an RRSP.

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. For more information concerning advance tax rulings, please refer to Information Circular 70-6R5 dated May 17, 2002. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. The following comments are, therefore of a general nature only and are not binding on the Canada Revenue Agency ("CRA"). All publications referred to herein can be accessed on the CRA website at the following address: http://www.ccra-adrc.gc.ca/formspubs/menu-e.html.

In general, clause 60(j.1)(ii)(B) of the Act permits an additional $1,500 per year to be included in the amount that may be transferred to an RRSP under paragraph 60(j.1) where employer contributions under a DPSP of the employer have not vested in the employee at the time the retiring allowance is paid. The CRA's views concerning when employer contributions are considered vested for purposes of clause 60(j.1)(ii)(B) of the Act are contained in paragraph 22(e) of Interpretation Bulletin IT-337R4. In particular, this paragraph states that contributions to a plan have vested in a retiree when the retiring allowance is paid if the retiree at the time the retiring allowance is paid is entitled to either a pension or a lump sum amount from the plan, which includes the employer's contributions.

The issue in your letter is whether or not the employees who participated in the DPSP which was discontinued and who received amounts from the DPSP which included vested employer contributions would be entitled to transfer the additional $1,500 per year of their retiring allowance to an RRSP in accordance with clause 60(j.1)(ii)(B) of the Act. It is our view that the employer contributions would be considered to have vested in the employee for purposes of clause 60(j.1)(ii)(B) of the Act and consequently the employee would not be entitled to transfer the additional $1,500 per year.

We trust the above 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