4 August 1994 External T.I. 9416315 - RETIRING ALLOWANCE,VESTED CONTRIBUTIONS

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:how is 60(j.1)((i)(B) amount calculated

Position TAKEN:		routine explanation

Reasons FOR POSITION: routine

XXXXXXXXXX		5-941631

Attention: XXXXXXXXXX

August 4, 1994

Dear Sirs:

Re: Retiring Allowance Transfers
Paragraph 60(j.1) of the Income Tax Act (the "Act")

This is in reply to your letter of June 23, 1994, requesting clarification of the amount of a retiring allowance that may be transferred to an RRSP.

Under clause 60(j.1)(i)(A) of the Act, the amount of retiring allowance that can be transferred is $2,000 times the number of years during which a retiree was employed by an employer or a person related to an employer. The number of years includes a part year as a full year.

Under clause 60(j.1)(i)(B) of the Act, an additional amount of $1,500 per year can also be transferred for each year prior to 1989, during which the retiree was employed by the employer, or a person related to the employer, minus the equivalent number of years prior to 1989 in respect of which employer contributions to a pension plan vested. As explained in ¶13(c) of the Department's Interpretation Bulletin IT337R2, the "number of years in respect of which employer contributions have been made" can not be a fractional number although "the equivalent number of years of vesting can". In other words, if an employer contributes to a pension on behalf of an employee for any part of a year, the whole year is counted as a year in respect of which employer contributions have been made. If the employer contribution for that part of the year are fully vested in the employee at the time of retirement, the whole year is also counted as part of the equivalent number of years of vesting. However, if only a part of the contribution is vested in the employee at the time of retirement, the equivalent number of years may be a fraction of a year.

The fractional number of years referred to in ¶13(c) of the Bulletin does not relate to the portion of a calendar year for which employer contributions were made. It relates to the fact that a portion of an employer contribution made in a year under a plan may not vest in an employee because of the terms of the plan. For example, a pension might provide that employer contributions made in any year will not vest in an employee if the employee does not remain with the employer for three years. Accordingly, if an employee worked for four full years before retiring, only 25% of the employer contributions (the contributions made in the first year) would be vested.

To further clarify, assume an employee hired in April, 1984, became a member of the employer pension plan on July 1, 1984, and terminated employment on June 1, 1994. In this case:

if the plan provides that employer contributions are fully vested at the time of retirement, the employee could transfer a retiring allowance of $22,000 ($2,000*11 years) to an RRSP but could not transfer any amount under the provisions of clause 60(j.1)(i)(B). The contribution made in 1984 for the part year would be counted as being in respect of the full calendar year;

if the plan provides that employer contributions will not vest in the retiree at the time of termination, the additional amount allowed under clause 60(j.1)(i)(B) of the Act could also be transferred. This would be calculated as $1,500 times the 5 calendar years of employment between 1984 and 1988 inclusive; and

if the terms of the plan provides that only one-half of the employer contributions made before 1989 are vested, the additional amount allowed would be calculated as $1,500 times 50% of the 5 years 1984 to 1988.

The above comments are based on our understanding of the law as it applies in general and may or may not apply to the circumstances of a particular case. They do not form an advance income tax ruling and they are not binding on the Department.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch