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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
Where a pension plan has both defined benefit provisions and defined contribution provisions and the defined benefit contributions only are invested through a master trust (149(1)(o.4)) can the beneficiary be considered to be a separate 149(1)(o) trust which holds only an interest in the master trust and is the beneficiary of the master trust for purposes of regulation 5000(1.2)? The custodian of the defined contribution assets will not be a trust company but will be an insurance company.
Position: Yes.
Reasons:
The trust and the insurance company are separate funding mechanisms and are two distinct entities for income tax purposes. Each entity holds its own distinct and traceable (sourceable) assets.
XXXXXXXXXX 2002-016490
G. Kauppinen
April 1, 2003
Dear XXXXXXXXXX:
Re: Master Trust and Regulation 5000(1.2)
This is in reply to your letter dated September 24, 2002 regarding master trusts and subsection 5000(1.2) of the Income Tax Regulations ("Regulations") regarding foreign property content.
You ask our opinion as to whether the "beneficiary" for the purpose of subsection 5000(1.2) of the Regulations can be considered to be a pension trust (within the meaning of paragraph 149(1)(o) of the Income Tax Act ("Act")) where the pension trust is the only funding vehicle for the defined benefit provisions of a pension plan. The defined contribution assets of the pension plan will not be held by the pension trust but will be invested through an insurance company.
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 income tax rulings, please refer to Information Circular 70-6R5 dated May 17, 2002, issued by the Canada Customs and Revenue Agency. Consequently, we can only provide you with the following general comments.
As noted in paragraph 6(e) of Information Circular 72-13R5 entitled Employees' Pension Plan, a pension plan has to be funded through:
(a) an insurance contract;
(b) a trust arrangement;
(c) a pension corporation;
(d) as arrangement administered by the Government of Canada or by the government of a province of Canada, or by an agent thereof, or
(e) a combination of the above funding media.
An RPP may use one funding media for its defined benefit provisions and different funding media for its defined contribution provisions. Where the RPP uses a pension trust to fund its defined benefit provisions and this pension trust invests in a master trust, within the meaning assigned by paragraph 149(1)(o.4) of the Act, the pension trust will be the beneficiary of the master trust for the purpose of subsection 5000(1.2) of the Regulations.
In our view, in determining whether the interest in the master trust would constitute foreign property for purposes of Part XI of the Act pursuant to subsection 5000(1.2) of the Regulations, we would look at the property of the pension trust in applying paragraph 5000(1.2)(a) of the Regulations. Consequently, the property held by the RPP's different funding media for its defined contribution provisions would not affect the pension trust for the purposes of applying subsection 5000(1.2) of the Regulations.
We trust our comments will be of assistance to you.
Yours truly,
Mickey Sarazin, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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