Section 147.2

Subsection 147.2(1) - Pension contributions deductible — employer contributions

See Also

Patons & Baldwins Ltd. v. MNR, 69 DTC 189, [1969] Tax A.B.C. 221

S.11(1)(g) of the pre-1972 Act was found to preclude the deduction of annual contributions to an unregistered pension plan under the general law relating to deductions by commercial enterprises.

Administrative Policy

6 May 1991 T.I. (Tax Window, No. 3, p. 12, ¶1241)

Where a corporation contributes treasury shares, an amount equal to their fair market value would normally be deductible by the corporation.

Subsection 147.2(2) - Employer contributions — defined benefit provisions

Administrative Policy

30 November 1995 Ruling 9636543 - 147.2(2) EMPLOYEE OF PREDECESSOR

An employer may take a deduction under s. 147.2(2) with respect to employees of a predecessor employer.

18 June 1992 Internal T.I. 7-921699 -

General discussion.

new item

Paragraph 147.2(2)(a)

Subparagraph 147.2(2)(a)(vi)

Administrative Policy

Actuarial Bulletin No. 4 - Draft Bulletin for Industry Consultation "Reasonable Methods to Apportion Assets and Actuarial Liabilities" 8 January 2020

Subject of Bulletin

This bulletin gives guidelines and examples of reasonable methods to apportion assets and actuarial liabilities for the purpose of funding a defined benefit (DB) provision of a registered pension plan that has more than one participating employer.

Policy guiding review of apportionment method

Generally, we accept apportionment methods that do not create a bias towards a particular participating employer. Distorting the assets, liabilities, or qualifying transfers may lead to a participating employer making larger than appropriate contributions. Apportionment methods based on lifetime retirement benefits accrued with each participating employer are generally acceptable.

Acceptable apportionment methods

Actuarial valuation reports sent after December 31, 2020, must use apportionment methods that are consistent with this bulletin. …

The following are apportionment methods we consider to be reasonable.

Liability apportionment – prorated to earnings

This method apportions the liabilities based on each participating employer’s share of a member’s lifetime retirement benefits. If a member receives pensionable earnings (compensation) from multiple participating employers in the year, the actuary must use those pensionable earnings to prorate the accrued lifetime retirement benefit (LRB) and DB limit in the year. …

Asset apportionment – prorated to liabilities

This method apportions the assets in proportion to the liabilities allocated to each participating employer using the pensionable earnings. Generally, prorating the assets to the liabilities would result in an appropriate funding request.

However, there are cases where prorating assets based on liabilities may become inappropriate. This would be the case if one of the participating employers takes a contribution holiday and makes a lower contribution than the amount recommended in the actuarial valuation report, while the other participating employers keep making the recommended contributions.

This may result in a significant shift in assets between participating employers, which could lead to inappropriate funding requests. In these cases, the actuary must use the separate accounting method.

Asset apportionment – separate accounting

The separate accounting method divides plan assets based on each participating employer’s actual contributions, related investment income and other cash flows.

By accounting for plan assets separately, there may be an unfunded liability for employees of one participating employer at the same time as there is an actuarial surplus for employees of another employer who participates in the same plan.

Continuation of employer who ceases participating

[O]ne of the participating employers [may] stop ... participating in the plan due to bankruptcy, wind up, dissolution, sale of business, or [if] it voluntarily removes itself as a participating employer. ...

For inactive employers, assets and actuarial liabilities should continue to be apportioned to that employer.

paragraph 147.2(2)(d)

Administrative Policy

Newsletter 21-1, Additional Conditions Applicable to Individual Pension Plans and Designated Plans, 16 March 2021

Effective prohibition of the avoidance of contribution holidays through using hybrid defined benefit/money purchase provisions

  • Some employers who sponsor individual pension plan (IPPs) (as defined in Reg. 8300(1)) and designated plans (defined in Reg. 8515(1)) with excess surplus try to avoid the requirement under s. 147.2(2)(d) for a contribution holiday by amending the plan to suspend defined benefit accruals for members and add a money purchase provision under which the employer would then continue contributions.
  • CRA has now imposed a condition, effective March 16, 2021, that prohibits employers and members from contributing to a money purchase provision of an IPP or to a designated plan if actuarial surplus under the defined benefit provision of the plan is more than the surplus limit – so that any required contributions to the plan’s money purchase provision are permitted only if they are made from the surplus.

Subsection 147.2(4) - Amount of employee’s pension contributions deductible

See Also

Smith v. The Queen, 2018 TCC 61 (Informal Procedure)

RPP contribution deductible only from employment income rather than income generally

In his 2015 taxation year, the taxpayer (a status Indian) received $37,800 in exempt employment income from the Tlowitsis‑Mumtagila First Nation, and also had over $100,000 in investment income, which was not exempt under the Indian Act. Miller J confirmed the denial by the Minister of his deduction for $3,213 in registered pension plan ("RPP") contributions which he effectively had sought to deduct from his non-employment income.

Graham J noted (at para. 15) that in his dissenting reasons in Hickman Motors, Iacobucci J had found a “requirement to segregate income according to various sub-sources” (e.g., to distinguish the business income arising from each business, property or employment of a taxpayer) and (at para. 17) that FLSmidth rejected the proposition that “income…from business or property” in s. 20(12) “referred to a single unified source of income or to the income derived from business or property generally.” He also noted (at para. 18) that although the specific deduction provision (s. 147.2(4)) “does not identify a specific source of income,” s. 147.2(4) referenced s. 8(1)(m), which was located in subdivision a and whose “heading indicates that these provisions are restricted to income from an office or employment.” In denying the deduction, he then stated (at para. 20):

[A] taxpayer must calculate income in any taxation year from all sources but it is calculated with reference to each source, which in this appeal, means each office or each employment. The deduction for RPP contributions cannot be treated as a deduction in the general sense so that it could be separated from its income source. The Appellant cannot take the deduction, which is connected to his employment with Tlowitsis-Mumtagila First Nation and apply it generally against his other income of dividends and capital gains interest.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 3 income is to be computed on a “sub-source” basis 117
Tax Topics - Statutory Interpretation - Headings heading provided guidance on the overall framework 236

Administrative Policy

26 November 2013 External T.I. 2013-0498601E5 - Voluntary contribution to U.K. Pension

top-up contribution to UK plan

The resident taxpayer, who had emigrated from the U.K., could not deduct a "top-up" contribution to a U.K. pension plan in determining taxable income for Canadian tax purposes, as contributions to a pension plan are only deductible in computing a Canadian resident's taxable income where the pension plan is registered, and "a U.K. pension plan does not satisfy the definition of a registered pension plan."

21 July 1992 Internal T.I. 5-922117 -

Discussion of situation arising out of a federal government employee going to another employer before the employee has fully paid the cost of buying back past service.

Paragraph 147.2(4)(a) - Service after 1989

Administrative Policy

12 July 2007 Internal T.I. 2007-0240681I7 F - Indiens - Cotisations à un RPA

s. 8(1)(m) deduction prorated based on percentage of work performed on the reserve

During his 2006 taxation year, when only a portion of his income was exempt under s. 87 of the Indian Act, the taxpayer made past service contributions for his 1979 to 1981 taxation years, during which his employment earnings were completely exempt. The Directorate stated:

The fact that employment income from 1979 to 1981 was exempt … is not in itself determinative of the taxpayer's entitlement to the paragraph 8(1)(m) deduction in 2006. Consequently … the Contributions may be deducted in computing the taxpayer's taxable employment income in 2006 to the extent permitted by subsection 147.2(4). …

Where an expense relates to both on-reserve and off-reserve income … the taxpayer must prorate the expense in question to determine the taxpayer's net employment income that is exempt … . That proration reflects the percentage of work performed on the reserve.

Subsection 147.2(8)

Administrative Policy

Actuarial Bulletin No. 4 - Draft Bulletin for Industry Consultation "Reasonable Methods to Apportion Assets and Actuarial Liabilities" 8 January 2020

Monitoring compliance with continuity rules

[S]ubsection 147.2(8) ... deems former employees of a vendor to be employees of a participating employer if the agreement involves an assignment of a DB plan from the vendor to the participating employer. This allows the participating employer to contribute to the plan to fund benefits provided to employees of a predecessor employer.

Amalgamated corporations and subsidiaries that are merged into their parent corporation are also considered predecessor employers for purposes of the registered pension plan rules. The assets and liabilities of the predecessor employer should be apportioned to the continuing participating employer. The continuing employer can contribute to the plan for the former employees of the predecessor employer.

2015 Ruling 2015-0601441R3 - XXXXXXXXXX Partnership - winding up

s. 147.2 continuity following s. 98(5) wind-up
Current structure

Sub1 and Sub2 (both taxable Canadian corporations and wholly-owned subsidiaries of Parent) are currently the sole partners of a general partnership (“Partnership”). Partnership’s business generates income under s. 12(1)(a) and Partnership claims a reserve under s. 20(1)(m). Partnership is the plan sponsor and a participating employer in connection with each of the Employee Unfunded Benefit Plans. Sub1 was indebted to Partnership under the demand non-interest bearing “Sub1-Partnership Note”), and Parent was indebted to Partnership under the “Parent-Partnership Note,” which was interest bearing and payable on demand.

Proposed transactions
  1. Sub1 will repay the Sub1-Partnership Note by assuming Partnership’s accounts payable.
  2. Sub1 will assume all indebtedness of Partnership, including the Partnership-Parent Note and Partnership’s obligation to pay "Employee Accruals" under various compensation and retirement plans in consideration for additional Partnership Units.
  3. Partnership will pay to Sub1 a reasonable amount for undertaking to assume Partnership’s prepaid revenue obligations (by assigning an equivalent amount of the Parent-Partnership Note as payment), and a joint election will be made under s. 20(24).
  4. Sub2 will transfer its interest in Partnership to Sub1 in consideration for Sub1 Preferred Shares and a non-interest bearing promissory note (the “Sub1 Note”), jointly electing under s. 85(1). As a consequence Partnership will cease to exist, Sub1 will become the sole owner of all the Partnership property and Sub1 will become subject to all the remaining obligations of Partnership, and immediately after the time that Partnership ceased to exist, Sub1 will carry on alone the business that was the business of Partnership.

A former employee of Partnership will be deemed to be a former employee of Sub1 for the purpose of s. 147.2(8) and Partnership will be considered a “predecessor employer” for such purpose, pursuant Reg. 8500(1.2) and the definition of “predecessor employer” in Reg. 8500(1). There may be deducted in computing the income of Sub1 the total of all amounts each of which is a contribution made by Sub1 after the winding-up to a Defined Benefit Pension Plan within the time prescribed in s. 147.2(1).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 98 - Subsection 98(5) 98(5) wind-up through s. 85 transfer of partnership interest of one partner to the other and preceded by debt assumptions 292
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) - Subparagraph 20(1)(c)(ii) interest deductible following assumption of interest-bearing internal debt on s. 98(5) wind-up 297
Tax Topics - Income Tax Act - Section 34.2 - Subsection 34.2(11) continuation of s. 34.2(11) reserve following partnership wind-up 336
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(m) continued availability of s. 20(1)(m) reserve following s. 98(5) wind-up 284
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(n) flow-through of s. 20(1)(n) reserve on s. 98(5) wind-up 280
Tax Topics - Income Tax Act - Section 20 - Subsection 20(24) s. 20(24) election on s. 98(5) wind-up 298
Tax Topics - Income Tax Act - Section 18 - Subsection 18(9) s. 18(9) deduction claimable by transferee former partner following s. 98(5) wind-up 232
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(i) no income inclusion on assumption on s. 98(5) wind-up of DSUs and RSUs 347
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Salary Deferral Arrangement - Paragraph (k) no income on RSU/DSU assumption 22