5 July 1994 Internal T.I. 9409476 - RPP TRANSFERS PRESCRIBED AMOUNT.

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:

Can amount in excess of the prescibed amount be retained in an RPP when prescibed amount is transferred?

Position TAKEN:

No.

Reasons FOR POSITION:

Technically impossible and not intended.

			July 5, 1994

	Head Office	Head Office
	Registered Plans Division	Rulings Directorate
	Policy Section	(613) 957-8953
	Attention:  Pierre Cloutier
	            Chief          

			7-940947

Commutation and Payment of Defined Benefits

This is in reply to your memorandum of April 14, 1994 on the above noted topic.

Subsection 147.1(1) of the Income Tax Act (the "Act") defines a "single amount" for the purposes of sections 147.1, 147.2 and 147.3 of the Act and subsection 8500(2) of the Income Tax Regulations (the "Regulations") provides that the definition will apply in Part LXVVV of the Regulations. A "single amount" is defined as an amount that is not part of a series of periodic payments.

A series of periodic payments is considered to be a series of at least three equal (or similar) amounts paid at certain specified intervals. Accordingly, a "single amount" paid out of a pension will, in general, be a payment that is not part of the periodic pension benefits payable out of the plan.

Subsection 248(1) defines "amount" as money, rights or things expressed in terms of the amount of money or the value in terms of money of the right or thing. Accordingly a single amount can be composed of a number of properties and a transfer of a member's rights to an amount can be paid out of a plan through a combined transfer of property and payment of cash. Nevertheless, in our opinion, this will not assist a member in avoiding the prescribed amount limitation for transfers from defined benefit plans to money purchase plans for the reasons discussed below.

2.Subsection 147.3(4) applies to a transfer of an amount from a defined benefit provision of a registered pension plan to an RRSP or money purchase provision of another pension plan if the amount is a single amount. It does not apply to the transfer of a portion of a single amount. However, a portion of an amount could itself be a single amount. Accordingly, if a payment out of an RPP is composed of two or more amounts and one of those is a single amount that portion could be transferred in accordance with the provisions of 147.3(4). For example, a person might receive two payments from a pension in full commutation of his or her benefits. Each payment would constitute a partial commutation of those benefits and each would be a single amount. If one of those payments was transferred to an RRSP and the other provisions of subsection 147.3(4) were met, the amount would be an acceptable transfer.

As we understand your enquiry, you want to know if there is a means by which a commutation of benefits can be made whereby a "single amount" can be determined which will include a payment to be transferred to another plan and an amount to be retained in the plan. In this way the amount of a commuted pension that is not in excess of the prescribed amount (defined in regulation 8517) could be transferred tax free while the balance remained sheltered in the original plan.

To illustrate, assume a person under 50 has a defined benefit provision that will pay benefits with an "amount of lifetime retirement benefits commuted" value of $40,000. The prescribed amount for this pension under Regulation 8517 is $40,000*9 or $360,000.

If the present value of the defined benefit is 400,000 an excess of 40,000 will exist if the benefit is fully commuted. Similarly, if a partial commutation of one half of the benefits is made, the prescribed amount will be 180,000 and the excess will be 20,000.

Since a single amount can be paid in respect of the partial commutation of a benefit, it is not possible for a portion of a single amount to be left in a plan, for later dispersal, if the amount is left under the same provision as it was originally held. By definition, the amount paid out will be in respect of a partial commutation and will, in itself, be a single amount. The remaining benefits can only be paid out as one or more single amounts or as periodic pension benefits in accordance with the benefit provisions. In any event the prescribed amount rules will apply to any transfer.

As noted above, it is possible to pay two single amounts at the same time and in such a case, one of the amounts could be paid under one provision of the plan to another provision of the same registered plan. However, this kind of transaction will fall under the provisions of Regulation 8502(k) and it will be subject to the same rules as the payment of a single amount to another registered plan. Similarly, if, as you suggest, a single amount can be transferred under the terms of a pension in two portions with one portion governed by 147.3(4) and the other governed by 147.3(3), the prescribed amount rules will still apply. As noted under 1. above, although there may appear to be one single amount in such a case, each payment will, in fact, constitute a single amount for the purposes of these provisions.

In our opinion, the proposal submitted would also not achieve the desired results in any event because of the means by which the prescribed amount must be determined. As noted above, subsection 147.3(4) of the Act provides, in part, that an amount can be transferred if the transfer does not exceed a prescribed amount. The prescribed amount is then determined as a function of "lifetime retirement benefits commuted" as defined in subsection 8517(4) of the Regulations. This provision however determines the commuted amount to be the amount by which the individuals normal pension is reduced by the particular transfer. Accordingly, the prescribed amount must always be determined as a function of the amount of the transfer. It can never be based on some larger single amount.

To summarize, using our example, assume an individual requests a transfer of $360,000 equal to the prescribed amount of a full commutation of all benefits but left $40,000 in the plan being the amount in excess of the prescribed amount.

If the amount left in the plan remains under the same benefit provision of the plan, the transfer out of the plan would not constitute a full commutation of those benefits. Accordingly the prescribed amount must be reduced to reflect the actual amount by which the transfer reduced the normalized pension. In our example the prescribed amount would be reduced to $324,000 and the transfer would exceed the limit by $36,000.

Similarly, if the excess left under the plan is transferred to another benefit provision, the amount transferred to another plan will have a reduced prescribed amount. Furthermore, if the excess is left in a money purchase provision, it too will be subject to subsection 147.3(4).

In conclusion we also note that permissable transfers of amounts from one registered plan to another do not fall under the permissible benefit rules of Regulation 8502(c). Such transfers fall under the rules for permissible distributions under Regulation 8502(d). Regulation 8502(c) and, in turn, 8503(2)(m) only apply where a single amount is paid to a member as a benefit. In our opinion there would rarely be any constructive receipt of an amount if it is retained in a plan since the member would not likely have free access or control over the funds.

for Director
Financial Industries Division
Rulings Directorate