7 December 1991 Income Tax Severed Letter - Deductibility of employer contributions to a defined benefit registered pension plan pursuant to a collective bargaining agreement

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.

Registered Pension Plan ("RPP")
Deductibility of Employer Contributions

This is in reply to your Round Trip Memorandum of August 27, 1991 requesting our views on a matter referred to you by the Registered Plans Division. The matter has been raised in a letter to that Division from XXX.

In particular, the issue involves the deductibility by an employer of contributions it makes after 1990 to a defined benefit RPP pursuant to a collective bargaining agreement rather than pursuant to the terms of the plan. The RPP is not a "specified multi-employer plan" ("SMEP") within the meaning given to that term in subsection 8510(2) of the proposed Regulations.

Our Comments

The deductibility of contributions made by an employee after 1990 to a defined benefit RPP, other than a SMEP, is governed by paragraph 147.2(1)(b) of the Act. To the extent that the provisions of that paragraph are not met, the contribution is not deductible.

For a contribution made after 1990 to be deductible by an employer, subparagraph 147.2(1)(b)(i) requires that the contribution be an "eligible contribution", a term defined in subsection 147.2(2) of the Act to mean a "prescribed contribution" or a contribution that complies with prescribed conditions and made pursuant to the recommendation by an actuary ... Since a recommendation by an actuary is not involved in the situation described by XXX , the contribution by the employer must be a prescribed contribution to be deductible.

Under subsection 8516(1) of the proposed Regulations, a prescribed contribution for the purposes of subsection 147.2(2) of the Act is one described in any of subsections 8516(2) to (6). Relevant to the issue at hand is subsection 8516(4), which provides that a contribution made by an employer pursuant to a collective bargaining agreement will be deductible where the agreement was entered into before 1990 and the contribution is made before 1994. Otherwise, a contribution made after 1990 by an employer pursuant to a collective bargaining agreement is not deductible unless it happens to be described in one of the other provisions of section 8516, which is not the case according to XXX Consequently, in the situation described by XXX, a contribution made after 1990 under the collective bargaining agreement will be deductible by the employer only if it is made before 1994 and only if the agreement was in place before 1990, assuming that the proposed Regulations are promulgated as they presently read.

As an aside, we note that in the initial draft Regulations the relevant provision was subsection 8514(4), which provided that a contribution made by an employer pursuant to a collective bargaining agreement would be deductible by the employer only where it was made in 1991 and the agreement was in place on March 27, 1988. The current proposed Regulations have, as noted above, extended this grandfathering to collective bargaining agreements that were in place before 1990 and to contributions made before 1994 under such an agreement. It thus seems obvious that Finance has considered this particular issue and decided to make non-deductible any contributions made after 1990 by an employer pursuant to a collective bargaining agreement except where they meet the grandfathering provision in subsection 8516(4), or are otherwise described in section 8516 of the proposed Regulations.