Regulation 8502

Cases

Pension Plan for Presidents of 1398874 Ontario Inc. v. Canada (National Revenue), 2010 DTC 5030 [at 6634], 2010 FCA 14

The taxpayer was incorporated by a retiring police officer to set up an individual pension plan, into which he transferred the commuted value of his pension from OMERS. In dismissing the taxpayer's appeal of the Minister's notice of intent to revoke the individual pensions plan, the Court concluded that the Minister had been correct in determining that the purpose of the taxpayer in establishing the plan was to shelter the commuted value of his OMERS pension and to withdraw surplus (which, in fact, he did the day after he made the transfer into his new plan), rather than to provide periodic payments until death.

Administrative Policy

23 July 1992 Internal T.I. 7-921856 -

The controlling shareholders of corporations that collectively formed a partnership would be entitled to be members of a defined benefit plan established for the partnership given that those individuals also were employees of the partnership.

Paragraph 8502(a) - Primary Purpose

See Also

Ross v. The Queen, 2013 DTC 1250 [at 1400], 2013 TCC 333

In 2001, the first taxpayer transferred the commuted value of his entitlements under his registered pension plan with OMERS to a new pension plan established by a newly-incorporated corporation which was to employ him as its only employee in a start-up business. The new business was unsuccessful, and the taxpayer only received (at most) modest employment income before the business was discontinued.

The Minister revoked the new pension plan retroactively, and added the transferred amount to the taxpayer's income for 2001, on the basis that the primary purpose of the new plan was to shelter, under s. 147.3, the transfer out of the old plan rather than to generate periodic pension benefits in respect of the services of an employee, as required by Reg. 8502(a). Before going on to find that the Minister's reassessment of the taxpayer's 2001 year was statute-barred, Bocock J noted (at para. 42) that a qualifying pension plan was concerned with "primarily providing lifetime retirement benefits as defined in Regulations 8502 and 8504 (the 'Lifetime Benefit Purpose'), and then stated (at para. 44) that the existence of other purposes did not establish the absence of this primary purpose:

The Court is not satisfied that the presence of the purposes related to surplus benefit distribution and succession benefits have done so. The surplus benefit distribution is allowed at law and has occurred in many registered pension plans, including potentially the OMERS plan from which the commuted benefits were initially transferred. It cannot be suggested that such a distribution is supercedeous to the primary purpose, when the very calculation undertaken to determine whether a surplus distribution may be made is whether sufficient assets will remain to satisfy the Lifetime Benefits Purpose. Not dissimilarly, succession planning with respect to the assets is completely compatible with the Lifetime Benefit Purpose, since succession rights only become choate upon the pensioner's death, after which time the Lifetime Benefit Purpose has logically expired.]

Paragraph 8502(c) - Permissible Benefits

Administrative Policy

26 April 1994 Internal T.I. 7-940948 -

Prizes paid to beneficiaries in order to induce them to purchase past service represent distributions described in Regulation 8502(d) and benefits that do not comply with Regulation 8502(c).

Paragraph 8502(i)

Administrative Policy

10 May 2016 Internal T.I. 2016-0644761I7 - RPP borrowing

pension plan could correct excess borrowing on a going-forward basis through assumption of the debt by a 149(1)(o.2)(ii) sub with plan guarantees

As the amount of borrowing in respect of certain real estate properties of a pension plan exceeded their cost, the Directorate considered “that the Plan contravened paragraph 8502(i) and thus is a revocable plan pursuant to paragraph 8501(2)(a).” The Plan’s representative (who was requesting confirmation on a no-names basis that there would be no revocation of registration) proposed that the Plan transfer all real properties for which there were borrowing issues to a newly-formed s. 149(1)(o.2)(ii) subsidiary, which would assume the related debts, with the Plan being released but perhaps being required to provide guarantees. The Directorate stated that this “appears to be a reasonable solution to resolve past non-compliance,” and that:

If the Plan is a defined benefit plan, there is perhaps less of a concern about leveraged investing as the income tax rules provide for a self-adjusting mechanism. A higher rate of return than appropriate results in lower employer contributions. However, if the Plan is a money purchase plan, the concern about leveraged investing takes on greater importance as the borrowing would have served in effect to circumvent the RPP contribution limits. In this case, consideration should be given to requiring any excess investment earnings to be withdrawn from the Plan.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 149 - Subsection 149(1) - Paragraph 149(1)(o.2) - Subparagraph 149(1)(o.2)(iii) 149(1)(o.2)(ii) corp. could incur purchase price indebtedness on internal transfer in excess of vendor’s cost 142

Articles

Hersh Joshi, Jack Silverson, "Understanding and Doing Business with Tax-Exempt Entities", 2018 Conference Report (Canadian Tax Foundation), 29:1 – 35

Potential for deemed loan JV provisions to constitute borrowing ((p. 29-4)

Many joint venture agreements contain a clause providing that if one of the parties (“the defaulting party”) to the agreement defaults on certain financial obligations, the other party (“the non-defaulting party”) may satisfy such a financial obligation on the defaulting party’s behalf. …

If the pension plan is subject to one of these deemed loans, then—notwithstanding the fact that the pension plan has not actually been advanced any funds—the deemed loan could still be viewed as a borrowing for the purposes of regulation 8502(i). …

Hotel or ALF income not from property (p. 29-5)

[I]t must be ensured that any borrowing by a joint venture that includes a pension plan is used to acquire real property that produces rental income, not real property that produces income from the provision of services or income from a business, such as a hotel or an assisted-living centre.

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