7 May 1991 Income Tax Severed Letter - Contributions to Non-resident Pension Plan

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.

Dear Sir:

Re: Contributions To Non-Resident Pension Plan

This is with respect to your letter of March 19, 1991, in regard to the above noted topic, which was referred to us on May 9, 1991, for reply to your first and third questions. We understand that your second question was answered by our Registrations Directorate.

In general, under the present provisions of the Income Tax Act (the "Act"), the answers to your two questions are as follow:

• (1) Employer contributions to the plan would not, of and by themselves, limit the amount an employee could contribute to a Registered Retirement Savings Plan (an "RRSP"); and
• (3) Lump sum payments out of the plan can not be transferred to an RRSP except to the extent such payments can be attributed to an employee's service provided while he was not a resident of Canada. To be transferrable such amounts must be reported as pension income for the year and a deduction under subparagraph 110(1)(f)(i) of the Act must not have been claimed. This latter deduction is one which is allowed for certain amounts of income exempted from taxation in Canada under a foreign tax convention such as exists between Canada and the U.S.A.

While the above answers are correct in themselves, we must note that, from the information provided in your letter, this plan may constitute what is defined in the Act as a "Retirement Compensation Arrangement" or "RCA" for those of your employees who belong to the plan and are Canadian residents. It may, however, not be an RCA in respect of one or more of these employees if they had not been resident in Canada for more than 60 of the 72 months preceding their employment in Canada for which a contribution is being made and they were previously members of the plan before they became Canadian residents. These rules are more completely described in the Department's RCA guide, a copy of which is enclosed for your reference.

If the plan is an RCA in respect of any of your employees, your company, as the employer, is responsible for the payment of a refundable tax equal to 50 percent of all contributions made on behalf of these employees. Additionally the Trustees of the plan are required to maintain separate records for that portion of the plan and to pay the refundable tax in respect of any income earned in it. These rules are also described in the enclosed guide.

Since the subject matter of RCAs for international business enterprises can be complex, we have taken the liberty of referring your situation to Mr. S. McKenzie, Chief of Audit of the Vancouver District Office for his consideration and assistance in ensuring that your plan is administered correctly and we would expect that an officer of his staff will contact you shortly. If, in the interim, you have any further concerns we would ask that you direct them to Mr. McKenzie at 666-3502.

We trust these actions are satisfactory to your needs.