23 February 1995 External T.I. 9425085 - FOREIGN PENSION TRANSFERS TO RRSPS

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: What are the tax consequences on transfers of foreign pensions to RPPs. Is a PA calculation required in certain cases

Position TAKEN: Outlined basic tax consequences. Confirmed that amounts transferred to an RRSP and then to an RPP would not have a PA calculation.

Reasons FOR POSITION: Agreed that routine application of existing law provided this result.

XXXXXXXXXX 7-942508

Attention: XXXXXXXXXX

February 23, 1995

Dear Sirs:

Re: Transfers of Amounts from Foreign to Registered Pension Plans

This is in reply to your letter of May 24, 1994, concerning the transfer of funds from a U.K. pension plan to a registered pension plan ("RPP").

Your enquiry appears to relate to specific taxpayers involved in specific transactions, either completed or proposed. As indicated in paragraph 21 of the Department's Information Circular 70-6R2, written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in that Circular. Where the particular transactions are completed, the enquiry should be addressed to the relevant District Taxation Office. The following comments are therefore of a general nature only.

At a time when the individual is not resident in Canada for the purposes of the Income Tax Act (the "Act"), a transfer of an amount from a foreign pension plan to an RPP on behalf of an individual or the payment of an amount out of a foreign plan to an individual are not taxable events.

Where the individual employee is resident in Canada for purposes of the Act and there is a transfer of an amount directly from a foreign plan to an RPP of a lump-sum amount in settlement of the employee's entitlement under the foreign plan, the transaction will not be a taxable event if:

(a) the terms of the RPP provide for such a transfer;
and

(b)the transfer is not at the employee's request; i.e., it is not in the employee's power to demand payment of the funds or roll the funds into another plan.

Otherwise, subject to any overriding income tax treaty provisions, the Canadian income tax implications are as follow:

The foreign pension plan will be either a retirement compensation arrangement ("RCA") or an employee benefit plan ("EBP"). Where the plan is maintained primarily for the benefit of non-residents in respect of services rendered outside Canada, it will generally be an EBP for Canadian income tax purposes. However, if the plan is a "resident's arrangement" as described in subsection 207.6(5) of the Act in respect of the particular employee, it must be treated as an RCA unless the employer has elected not to have the rules in subsection 207.6(5) apply.

Where the foreign pension plan is an EBP, any amount paid out of the plan to an individual who is resident in Canada will be taxed as follows, regardless of whether the amount is transferred directly to an RPP on the individual's behalf or paid to the individual in one lump-sum amount or periodically in the form of a pension.

(a) To the extent that the amount is attributable to services rendered by the individual in a period other than a period throughout which the individual was not resident in Canada, the amount will be included in income under paragraph 6(1)(g) of the Act to the extent that it exceeds a return of amounts contributed to the plan by the individual.

(b) To the extent that the amount is attributable to services rendered by an individual in a period throughout which the individual was not resident in Canada, subparagraph 6(1)(g)(iii) of the Act will apply with the result that the amount will be included in income under subparagraph 56(1)(a)(i) of the Act.

Where the amount described in 2(b) above is received and a provision of an income tax treaty provides that a deduction may be made by the recipient to the extent that the amount would not be taxable in the country of origin were the recipient a resident thereof, a deduction is available by virtue of subparagraph 110(1)(f)(i) of the Act. This will generally apply to amounts covered by provisions of the Canada- US Income Tax Treaty. The deduction does not apply to an amount described in 2(a) above because the amount that would normally be deductible (i.e., the individual's own contributions) is already excluded from income under subparagraph 6(1)(g)(ii) of the Act.

An amount taxed under paragraph 6(1)(g) of the Act as discussed in 4(a) above is not eligible for rollover to an RPP.

To the extent that a deduction in respect thereof has not been made by the recipient under subparagraph 110(1)(f)(i) of the Act as discussed in 5 above, an amount taxed under subparagraph 56(1)(a)(i) of the Act as discussed in 4(b) above may be rolled over to an RPP if it is received in the form of a lump-sum amount; i.e., it is not received as part of a series of periodic payments. A deduction with respect to such a rollover is available under paragraph 60(j) of the Act. The rollover may be effected by transferring the lump-sum amount directly from the foreign plan to the RPP, or by making the lump-sum payment to the individual and the individual then contributing the amount to the RPP.

Where the foreign pension plan is an RCA, an amount paid out of the plan to an individual who is resident in Canada would be included in the individual's income under paragraph 56(1)(x), (y) or (z), depending upon the circumstances. An amount received out of an RCA may be rolled over to an RPP only where the amount represents a retiring allowance. The relevant deduction is available under paragraph 60(j.1) of the Act. An amount received out of a pension plan normally would not represent a retiring allowance.

Since the amount would be paid by a foreign authority, there would be no withholding by Canada with respect to such a payment. However, an amount could be withheld from the payment by the foreign authority. If there is such a withholding, the individual would be able to claim a foreign tax credit in respect thereof under section 126 of the Act. These comments would apply where the plan is a U.K. pension plan. We are not aware of any procedure by which an amount properly withheld by a foreign authority could be retrieved and contributed to the RPP. Whether or not an amount is properly withheld is a matter to be resolved between the recipient and the foreign authority.

Paragraph 60(j) provides a deduction for an amount transferred to an RPP as noted in 7 above. However, the deduction is limited to the amount in excess of any portion of the transfer deductible under paragraph 8(1)(m) of the Act. These mechanics prevent any double deduction for the amount of the transfer.

We also confirm that the definition of an excluded contribution in Regulation 8300(1) includes a transfer of an amount to an RRSP in accordance with subsection 146(16) of the Act. Accordingly such transfers to a money purchase plan are excluded in the calculation of a person's PA in accordance with the provisions of Regulations 8301(1) and (4).

The above comments reflect an expression of opinion only and are not binding on the Department, as explained in paragraph 21 of Information Circular 70-6R2. We trust however that they will be of assistance.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate
Policy & Legislation Branch