18 July 1995 External T.I. 9515535 - RETIRING ALLOWANCE RRSP PREVIOUS EMPLMT

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:

- where an employee chooses not to buy back years of service with another employer (eligible under his plan) and he is now eligible for pension benefits under the plan, will the years of service with previous employer be included in the formula to determine the amount that may be transferred to an RRSP?

Position TAKEN:

No

Reasons FOR POSITION TAKEN:

Former employer will not be related to current employer unless previous years bought back (see 60(j.1)(v)).

		951553
XXXXXXXXXX		M.P. Sarazin

July 18, 1995

Dear XXXXXXXXXX:

Re: Retiring Allowance Eligible for Transfer to an RRSP

This is in reply to a memorandum from the Public Service Commission dated June 12, 1995 requesting that we provide you with information regarding the amount of retiring allowance eligible for transfer to a registered retirement savings plan ("RRSP") under the provisions of subsection 60(j.1) of the Income Tax Act (the "Act") in the following situation. In addition, we were asked to comment on Pay Communique #95-006 issued by the Client Service - Advisory Nova Scotia Region on May 9, 1995.

An employee of the Federal Government is about to receive a retiring allowance on the termination of his or her employment. The employee was employed by the Federal Government from XXXXXXXXXX The employee resigned effective XXXXXXXXXX under the Early Retirement Incentive Program. The employee was formerly employed by the Government of Ontario during the period XXXXXXXXXX The employee received a return of contributions for the period of employment with the Government of Ontario and did not choose to buy back this period of employment for Federal Government pension purposes.

Our Comments

It appears that the interpretation you seek relates to a specific taxpayer and, therefore, we bring to your attention Information Circular 70-6R2 dated September 28, 1990 and the Special Release thereto dated September 30, 1992, issued by Revenue Canada, Customs, Excise and Taxation. Confirmation with respect to proposed transactions will only be provided in response to a request for an advance income tax ruling. However, we can offer the following general comments in response to your letter.

The part of a retiring allowance that is eligible for transfer to an RRSP is the sum of

(a)$2,000 times the number of calendar years before 1996 during which the employee was employed by the employer paying the retiring allowance, or an employer related to the employer (clause 60(j.1)(ii)(A) of the Act and proposed amendments announced February 27, 1995); and

(b)$1,500 times the number of years described in (a) that are before 1989 for which employer contributions to a pension plan or deferred profit sharing plan of the employer or an employer related to the employer did not vest in the employee at the time the retiring allowance is paid (clause 60(j.1)(ii)(B) of the Act).

The phrase "employer related to your employer" means related in law or in fact. Subparagraph 60(j.1)(v) of the Act states that, for the purposes of this paragraph, "person related the employer" includes a previous employer of the retiree whose service therewith is recognized in determining the retiree's pension benefits. Consequently, where an employee has not bought back the years of past service with an unrelated former employer, the former employer will not be an employer related to the employer and the years of past service with the former employer will not be included in part (a) of the formula described above.

In determining the number of eligible years for the purposes of part (a) of the formula described above, a part of a calendar year is counted as one complete year. For example, where an employee commenced employment with an employer in December of 1992 and left the employment in January of 1994, this would be counted as three years for the purposes of clause 60(j.1)(ii)(A) of the Act.

We have reviewed the limits described in the above-referenced Pay Communique and, even though the last limit in the first paragraph may give the impression that $3,500 may be contributed for each year prior to 1989 for which the employee receives a Return of Contributions, the first sentence of the second paragraph makes it very clear that no amount is eligible to be transferred to an RRSP for a period that an employee is eligible to elect/reciprocal transfer but opts not to purchase the period under the PSSA. We are of the view that the last limit in the first paragraph of the Pay Communique would have been more informative if it had made reference to a "Return of Contributions from the Federal Government under the PSSA".

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

c.c.Elizabeth Fournier

Human Resources Management Branch
Public Service Commission