8 September 1992 Income Tax Severed Letter 9221955 - Foreign 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.

5-922195
24(1) D. S. Delorey
(613) 957-8953
Attention: 19(1)
September 8, 1992

Dear Madam:

Re: 19(1)

This is in reply to your letter of July 16, 1992 concerning the taxation of funds to be received by 19(1)

In order to definitively reply to your enquiry, it is first necessary to determine whether or not the arrangement under which the payment from the 24(1) will be made constitutes a pension fund or plan. The status of an existing arrangement is a determination to be made by the relevant District Taxation Office. We therefore suggest that you forward your enquiry to the District Taxation Office that services the area in which 19(1) resides.

The following comments are of a general nature only and assume that the proposed payment would be received out of a pension fund or plan.

For Canadian income tax purposes, a payment out of a foreign pension plan will be subject to either the retirement compensation arrangement ("RCA") rules or the employee benefit plan ("EBP") rules.

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Both of these terms are defined in subsection 248(1) of the Income Tax Act (the "Act"). Depending on when the arrangement was entered into, the EBP rules could apply to part of the payment to be made to 19(1) and the RCA rules to the other part paid out of a "statutory arrangement", within the meaning given to that term in the coming-into-force provisions of the RCA definition.

Retirement Compensation Arrangement

A payment received by a resident of Canada out of or under an RCA is included in income under paragraph 56(1)(x) or (z) of the Act, depending on the circumstances. If the payment is taxable under paragraph 56(1)(x), a rollover to a registered retirement savings plan ("RRSP") is available to the extent provided in paragraph 60(j.1) of the Act, but only where the payment represents a retiring allowance. Accordingly, a rollover to an RRSP is not available for a pension payment received out of or under an RCA. More often than not, however, a payment out of a foreign pension plan will not be subject to the RCA rules because of the exclusion in paragraph (l) of the RCA definition. Paragraph (l) excludes a plan or arrangement (other than an athlete's plan) that is maintained primarily for the benefit of non- residents in respect of services rendered outside Canada. However, the paragraph (l) exclusion will not apply to the extent that subsection 207.6(5) of the Act deems the foreign plan to be a "resident's arrangement". On the other hand, subsection 207.6(5) will not prevent the exclusion from applying where the plan is a prescribed plan or arrangement described in paragraph 6802(e) of the Income Tax Regulations (the "Regulations"). As stated in the Department of Finance's Information Release No. 92-014 dated February 14, 1992, the automatic exemption in paragraph 6802(e) of the Regulations applies to contributions made before 1992. For contributions made to the foreign plan after 1991, the employer must elect not to have the RCA rules apply.

Employee Benefit Plan

Where the RCA rules do not apply to a payment out of a foreign pension plan, the EBP rules will apply to the payment. Unless the exclusion in subparagraph 6(1)(g)(iii) of the Act applies, an amount received out of an EBP by a resident of Canada is included in income under paragraph 6(1)(g) of the Act and a rollover to an RRSP is not available. However, where the exception in subparagraph 6(1)(g)(iii) does apply; i.e., the pension payment is attributable to services rendered in a period throughout which the recipient was not resident in Canada, the payment is included in income under subparagraph 56(1)(a)(i) of the Act.

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If such is the case and the pension payment is received in one lump sum amount, it may be rolled over to an RRSP under subparagraph 60(j)(i) of the Act to the extent it is not deducted by reason of subparagraph 110(1)(f)(i) of the Act. With respect to subparagraph 110(1)(f)(i) and while it may not be relevant, we note that part 5 of Article 18 of the Canada-Netherlands Income Tax Convention (1986) exempts from Canadian tax a pension payment made under the social security legislation of the Netherlands to a resident of Canada.

With respect to whether or not a rollover to an RRSP is available, you refer in your letter to subparagraph 60(j)ii) of the Act. We presume your reference to this subparagraph has to do with the newly enacted section 60.01 of the Act concerning a "foreign retirement arrangement", which is defined in subsection 248(1) of the Act to mean a prescribed plan or arrangement. As indicated in the Department of Finance's Explanatory Notes dated May 1991, only Individual Retirement Accounts referred to in subsections 408(a), (b) and (h) of the United States Internal Revenue Code are intended to be prescribed for this purpose. Accordingly, a rollover to an RRSP under subparagraph 60(j)(ii) of the Act would not be available with respect to a payment received from the Netherlands.

We trust our comments are of assistance.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate

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