18 April 1996 External T.I. 9602285 - FOREIGN PENSION, PENSION ADJUSTMENT

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 a member of a foreign pension plan contribute the maximum to an RRSP?

Position:

Probably not since a PA may have to be reported

Reasons:

The foreign plan is considered an RCA unless the employer elects to report a PA with respect to the employee(s).

									960228
XXXXXXXXXX							M.P. Sarazin

Attention: XXXXXXXXXX

April 18, 1996

Dear Sirs:

Re: RRSP Deduction Limit

This is in reply to your letter dated January 8, 1996 wherein you requested our comments regarding the reporting of a pension adjustment with respect to certain employees that are employed in Canada while members of a foreign pension plan.

Comments

It appears that your request for an opinion involves both specific taxpayers and completed transactions. Since the responsibility for determining the tax consequences arising from completed transactions rests with the tax services offices, the appropriate tax services office may, upon disclosure of all of the relevant facts, be able to assist you in clarifying the tax consequences pertaining thereto. Although we cannot comment directly on your situation, we are able to provide you with the following general comments.

Paragraph (l) of the definition of "retirement compensation arrangement" ("RCA") in subsection 248(1) of the Income Tax Act (the "Act") excludes an arrangement maintained primarily for non-residents and, as a consequence thereof, foreign pension plans are usually exempted by virtue of this provision.

The application of subsections 207.6(5) and (5.1) of the Act may deem contributions to a foreign plan to be resident's contributions and therefore RCA contributions. Subsection 207.6(5.1) of the Act defines the expression "resident's contribution" for the purpose of applying subsection 207.6(5) of the Act. The definition applies to contributions made to a foreign retirement plan that is excluded from being an RCA by paragraph (l) of the definition of RCA. However, contributions made in respect of an employee who has been resident in Canada for less than five of the preceding six years are excluded if the employee was a member of the foreign plan before becoming a Canadian resident, or became a plan member by the end of the calendar month following the month in which the employee became a resident. In addition, a prescribed contribution is excluded from the definition of resident's contribution. In general, a prescribed contribution is a contribution made after 1991 to a foreign plan where the employer elects to report pension adjustments in connection with the participation of the employees in the foreign plan and certain other conditions are satisfied.

Where there is no resident's contribution as a result of an election or exemption, the provisions of proposed subparagraph 8308.1(2)(b)(ii) of the Income Tax Regulations (the "Regulations") provides for the calculation of a pension credit with respect to an individual for a year under a foreign pension plan where the individual became entitled in the year to benefits under the foreign plan in respect of services rendered to an employer while the individual was a Canadian resident. The pension credit is equal to the lesser of the money purchase limit for the year minus $1,000 and 18% of the individual's compensation for the year from the employer minus $1,000. In general, a pension credit will be determined in respect of a foreign plan where contributions to the plan on behalf of the individual are not subject to the 50% refundable tax on contributions to an RCA.

In any case, an individual's pension adjustment for the purposes of subsection 248(1) of the Act is equal to the total of the individual's pension credits for the year in respect of the employer under benefit provisions of registered pension plans and deferred profit sharing plans and any foreign pension plans. These proposed amendments to the Regulations apply with respect to the determination of pension adjustments for 1992 and subsequent years. Under subsection 8401(1) of the Regulations, an employer is obligated to report the individual's pension adjustment on or before the last day of February in the immediately following calendar year. An individual's registered retirement savings plan deduction limit can only be computed after the determination of the pension adjustment for each of the relevant years whether or not the employer has reported the pension adjustment. If you have any questions on the computation of the pension adjustment, we suggest that you contact the Registered Plans Division at 1-800-267-3100.

Whether amounts paid to a foreign pension plan are deductible for purposes of the Act is a question of fact which can only be determined after a review of all of the facts. However, employer contributions to an RCA are deductible under paragraph 20(1)(r) of the Act.

We trust the above comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch