3 May 2000 External T.I. 2000-0014745 - REPORT RPP OVERCONT. REIMBURSEMENT

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: Should a pension contribution reimbursement made by an employer on behalf of the RPP administrator be reported on a T4 as employment income or on a T4A as pension income?

Position: Question of fact but probably a pension payment to be reported on a T4A.

Reasons: There are no facts available. The legal obligation to make the reimbursement will likely determine how the amount should have been reported.

XXXXXXXXXX 							2000-001474
M. P. Sarazin
Attention: XXXXXXXXXX 

May 3, 2000

Dear Sir\Madam:

Re: Retroactive Decrease in Employee Pension Contributions

This is in response to your letter dated March 16, 2000, wherein you requested our comments regarding the reporting of registered pension plan overpayment reimbursements to members of a registered pension plan ("RPP"). We also acknowledge the information provided in our phone calls (XXXXXXXXXX/Sarazin, XXXXXXXXXX/Sarazin and XXXXXXXXXX Sarazin)

The employees of an employer originally belonged to the Ontario Municipal Employees Retirement System RPP ("Old RPP"). Old RPP had an employee contribution rate equal to 6% of gross salary. As part of the restructuring of the health care system in Ontario, the employer's employees were no longer eligible to participate in Old RPP effective May 1, 1997. Pending a legislative amendment to the legislation governing Old RPP, the employee pension entitlements were transferred from Old RPP to an RPP administered by XXXXXXXXXX. Employees of the employer filed grievances regarding this transfer from Old RPP to XXXXXXXXXX. The grievances were settled when the employer agreed to have the pension benefit entitlements transferred to the Hospitals of Ontario Pension Plan ("New RPP"). Consequently, the employee pension entitlements were transferred from the RPP administered by XXXXXXXXXX to New RPP in July 1998 with pension entitlements retroactive to May 1, 1997.

New RPP has an employee contribution rate of 2.4% of earnings. As a result of the participation in New RPP being effective May 1, 1997, the employees were entitled to a reimbursement of the excess contributions for the period beginning May 1, 1997 and ending on the transfer date in July 1998. New RPP entered into an arrangement with the employer whereunder the employer paid the reimbursement to the employees on its behalf. The employer reported the reimbursement to each employee as an employment benefit on his or her T4. You ask whether the pension reimbursement should have been reported as an employment benefit.

Comments

In your letter you have outlined an actual fact situation related to completed transactions. As noted in Information Circular 70-6R3 (available at your local tax services office or on the internet at www.ccra-adrc.gc.ca/formspubs/menu-e.html), this directorate can only provide advance income tax rulings in respect of specific proposed transactions. We must advise you that the review of completed transactions falls within the responsibility of tax services offices. Consequently, we can only provide you with the following general comments.

The determination of whether a specific payment is made by an employer or by an employer as agent for another person will require a review of all of the relevant facts.

You will have to determine who was legally liable to make the reimbursement of the overcontributions. Where an RPP is legally liable for the reimbursement of excess pension contributions to its members, we are of the view that any amount distributed to the members in satisfaction of the pension contribution reimbursement would be a benefit received from the RPP in respect of the members' participation in the RPP. Where the RPP administrator arranges to have an employer satisfy the administrator's legal obligation to reimburse the RPP members, the amounts paid would still constitute a pension benefit received from the RPP (the employer has agreed to make the payment to the members on behalf of or as agent for the RPP).

We note that, under paragraph 8502(d)(iv) of the Income Tax Regulations, an RPP is permitted to return all or a portion of the contributions made by a member of the plan under a defined benefit provision of the plan, where the return of the contributions is pursuant to an amendment to the plan that also reduces the future member contributions to the plan. In our telephone conversations, you stated that the Registered Plans Division of the Canada Customs and Revenue Agency confirmed that the reimbursements were permissible distributions under an RPP in the above situation. It would appear that the reimbursements are, in fact, payments out of the RPP and, as a consequence thereof, they should have been reported as pension benefits on a T4A.

We suggest that you present the facts to your local tax services office. They will be able to determine whether the pension contribution reimbursements should have been reported on a T4 or on a T4A.

We trust that the above comments will be of assistance.

Yours truly,

Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate