Regulation 6804

Subsection 6804(6) - Contributions Made After 1994


Jim Kahane, Uros Karadzic, Simon Létourneau-Laroche, "A Fresh Look at Retirement Compensation Arrangement: A Flexible Vehicle for Retirement Planning", Canadian Tax Journal (2013) 61:2, 479 – 502.

Resident contribution rule (p. 491)

Under these rules, if a newcomer to Canada remains a member of his or her home-country pension plan for more than five years, the foreign pension plan may still be considered an RCA for Canadian tax purposes. The RCA rules, including the requirement to pay tax into an RTA, will apply with respect to the resident's contributions, unless the employer makes an election with respect to the foreign arrangement such that the contributions are considered "prescribed contributions". [fn 58: Regulation 6804(2).]

Overview (pp. 491-2)

The prescribed contribution rules are complex, but essentially are as follows: [fn 59: Regulation 6804(6).]

1. Contributions are made to a "qualifying entity," defined as a non-resident entity that holds the assets of the foreign plan, that is resident in a country that levies income taxes, and that qualifies for favourable tax treatment because it holds assets of a retirement plan. [fn 60: Regulation 6804(1) and 6804(6)(a).]

2. If the employer is not a "foreign non-profit organization:, [fn 61: Defined in regulation 6804(1) and regulation 6804(6)(e).]

a. the employee was non-resident at any time before the contribution is made;

b. the employee became a member of the foreign plan before the end of the month after the month in which the individual became resident in Canada; and

c. the employee is not a member of an RPP, or a deferred profit-sharing plan, in which the employer, or a person or body of persons that does not deal at arm's length with the employer, participates.

3. If the employer is a foreign non-profit organization, additional requirements with respect to the amount of the contribution must be met, notably with respect to a notional pension adjustment applicable to the employee. [fn 62: Regulation 6804(6)(c).]

Implications of prescribed contributions (p. 492)

If the contributions to the foreign retirement arrangement are prescribed contributions, the RCA rules will not apply, even if the employee is present in Canada beyond the five-year period. In this case, the characterization of the retirement arrangement and tax treatment will depend on the specific facts. For example, foreign pension plans are likely to be considered EBPs for Canadian tax purposes, since a custodian is involved in delivering retirement benefits. Consequently, the employer's deduction will be deferred to the year in which the employee is subject to tax on a distributions by the EBP. [fn 63: Subsection 32.1(1)] …