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:
A group of employees is being transferred from one employer to another resulting in the employees no longer being members of the former employer's pension plan. It is proposed that the surplus in the pension plan relating to these former employees be divided between the former employer and the former employees. Is the payment of the surplus as a lump sum to the former employees taxable?
Position TAKEN:
Yes.
Reasons:
"Superannuation or pension benefit" is defined in subsection 248(1) to include "any amount received out of or under a superannuation or pension fund or plan ...". The payments are taxable under subparagraph 56(1)(a)(i).
XXXXXXXXXX 2001-008352
T. Young, CA
October 3, 2001
Dear XXXXXXXXXX:
Re: Payment of Pension Surplus
This is in reply to your letter of May 9, 2001, concerning the division of a pension surplus. We also acknowledge our telephone conversation (Young/XXXXXXXXXX ) of September 20, 2001.
In your letter, you state that, as a result of municipal restructuring, members of the municipal police force are no longer employees of the municipality, but of a police services board. The municipality has contributed funds to a supplementary Ontario Municipal Employees Retirement System (OMERS) pension on behalf of its police force for a number of years. OMERS has indicated that the supplementary pension fund is no longer required. It has been proposed that the surplus funds be divided equally between the municipality and the members of the plan with the members receiving lump sum payments.
In your opinion, the lump sum payments would not be taxable because they cannot be characterized as:
- employment income taxable under section 5 or 6 of the Income Tax Act (the "Act");
- retiring allowances taxable under subparagraph 56(1)(a)(ii) of the Act; or
- pension or superannuation benefits taxable under subparagraph 56(1)(a)(i).
In support of your position you referred to Technical Interpretations 9816373 and 9210255 issued by this Directorate.
Written confirmation of the tax implications inherent in particular transactions is 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 Information Circular 70-6R4, Advance Income Tax Rulings, dated January 29, 2001. However, we are prepared to provide the following general comments, which may be of assistance to you.
Subsection 248(1) of the Act defines a "superannuation or pension benefit" to include:
any amount received out of or under a superannuation or pension fund or plan and, without restricting the generality of the foregoing, includes any payment made to a beneficiary under the fund or plan or to an employer or former employer of the beneficiary thereunder
(a) in accordance with the terms of the fund or plan,
(b) resulting from an amendment to or modification of the fund or plan, or
(c) resulting from the termination of the fund or plan;
Further, paragraph 4 of Interpretation Bulletin IT-499R, "Superannuation or Pension Benefits", states in part, "...any amount received out of a superannuation or pension fund is income whether it is in the nature of a single payment or otherwise."
With respect to the letters to which you referred, neither addressed the issue of the division of a surplus in a pension plan. Specifically, technical interpretation letter 9210255 addressed an ex gratia payment by a former employer under threat of legal action for damages stemming from the alleged wrongful actions of the employer. Advance income tax ruling 9816373 dealt with the payment of a lump sum by a former employer in settlement of a claim resulting from the cancellation of certain post-retirement health benefits by the former employer.
We trust our comments will be of assistance to you.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
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