19 June 2000 External T.I. 2000-0006175 - Foreign pension, PA, RCA

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: 1) Will there be a resident's contribution, within the meaning assigned by subsection 207.6(5.1) of the Act, where pension benefits under the foreign pension plan are funded with the pension plan's actuarial surplus? 2) Will there be a pension credit under 8308.1(2)(b) of the Regulations in respect of a foreign pension plan that is funding benefits for its members, including any Canadian resident members, with its actuarial surplus?

Position: 1) No. 2) No.

Reasons: 1) Without contributions, there cannot be a resident's contribution. 2) Subclauses 8308.1(2)(b)(iv)(I) and (II) of the Regulations specifically exclude a pension plan that has no contributions because of an actuarial surplus where any contribution, if made, would be a resident's contribution.

XXXXXXXXXX 2000-000617
M. P. Sarazin
Attention: XXXXXXXXXX

June 14, 2000

Dear Sirs:

Re: Foreign Pension Plan and Retirement Compensation Arrangement ("RCA")

This is in response to your letter dated February 3, 2000, wherein you requested our views regarding the application of Part XI.3 of the Income Tax Act (the "Act") and subsection 8308.1(2) of the Income Tax Regulations (the "Regulations") in the following situation.

A foreign corporation has a pension plan. Canadian employees of a Canadian corporation that is a subsidiary wholly-owned corporation of the foreign corporation are members of the pension plan. Contributions in respect of the Canadian employees have qualified as resident's contributions within the meaning assigned by subsection 207.6(5.1) of the Act resulting in a resident's arrangement within the meaning assigned by subsection 207.6(5) for purposes of Part XI.3 of the Act. The pension plan is now in a surplus position and no contributions are being made to the plan to fund the member benefits. You ask whether Part XI.3 will apply where there are no contributions to the foreign pension plan because of the pension surplus and whether a pension adjustment has to be reported in respect of the Canadian members of the foreign pension plan because of the benefits that are being funded through the foreign pension plan surplus.

Comments

Confirmation of the tax consequences associated with completed transactions are provided by the relevant tax services office. Opinions concerning proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. For more information concerning advance tax rulings, please refer to Information Circular 70-6R3 dated December 30, 1996, issued by the Canada Customs and Revenue Agency (the "Agency"). Copies of Information Circulars and Interpretation Bulletins are available from your local tax services office or on the Internet at the following site - http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. However, we can provide you with the following general comments.

The "refundable tax" of a retirement compensation arrangement ("RCA") is defined in subsection 207.5(1) of the Act. Generally, the refundable tax is equal to 50% of the contributions made to the plan and any earnings of the RCA with respect to the contributions made to the RCA. A plan or arrangement that is maintained primarily for the benefit on non-residents in respect of services rendered outside of Canada is excluded from being an RCA for purposes of the Act. However, subsection 207.6(5) of the Act provides that contributions to such a plan, including earnings thereon, in respect of employees resident in Canada will be subject to the refundable tax. In our view, the use of foreign pension plan surplus to fund future pension benefits provided to a Canadian resident under the particular foreign pension plan would not constitute a contribution that would be subjected to the refundable tax.

With respect to the application of paragraph 8308.1(2)(b) of the Regulations, each of the four conditions described within the provision would have to be satisfied in order to have a pension credit under subsection 8308.1(2) of the Regulations. Under clause 8308.1(2)(iv)(A) of the Regulation, one of the conditions is that no contribution was made under the foreign pension plan in the year in respect of the individual. However, there is a specific exclusion where no contribution is made because the foreign plan had an actuarial surplus where the contribution, if any had been made, would have been a resident's contribution for purposes of the Act. Where the exclusion provision is satisfied, we confirm that paragraph 8308.1(2)(a) of the Regulations would apply to deem the pension credit of an individual for a calendar year under the foreign pension plan to be nil.

We trust these comments will be of assistance.

Yours truly,

P. Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch