1 May 1998 Ministerial Letter 9806198 - PENSION SURPLUS, TRANSFER TO RRSP

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: Can a surplus be transferred to an RRSP or RRIf?

Position: No

Reasons: The Act clearly does not allow for this transfer.

Signed on May 1, 1998

XXXXXXXXXX

Dear XXXXXXXXXX:

Thank you for your letter of February 26, 1998, concerning the taxation of a pension surplus received by your constituent, XXXXXXXXXX.

You enclosed a copy of a letter of February 20,1998, from XXXXXXXXXX, in which he advised you that his former employer’s pension plan settled its obligations for its surplus funds in January 1997. The employer ceased to exist as of XXXXXXXXXX, and as a consequence, the pension plan should have been terminated 60 days later. However, as a result of a moratorium imposed in November 1988 by the Quebec Government, the surplus funds in the employer’s pension plan could not be distributed until after November 5, 1996. Since XXXXXXXXXX is no longer able to contribute to a registered retirement savings plan (RRSP), you have asked my department to exempt the surplus pension payment from taxation by allowing him to retroactively declare the surplus pension payment he received in 1997 on his 1989 tax return. You have also asked to offset such income inclusion with an RRSP deduction for an equivalent amount, even though there was no contribution to an RRSP in 1989.

The Income Tax Act clearly provides that all amounts received out of, or under a pension plan have to be included in the recipient’s income in the year of receipt. A deduction is only permitted in respect of premiums paid to the RRSP. Since the surplus pension was received in 1997, XXXXXXXXXX must include the amount received in his 1997 income. There is no provision in the Act that allows Revenue Canada to exclude the amount from his income, nor is there a provision that allows for an RRSP deduction for an amount that was not contributed to an RRSP.

I have enclosed a copy of a letter that was sent to XXXXXXXXXX by the Income Tax Rulings and Interpretations Directorate of Revenue Canada on March 20, 1998. This letter was sent in response to a letter of February 5, 1998, from XXXXXXXXXX. He requested that the Department allow him to transfer a portion of the pension surplus he received in 1997 to his registered retirement income fund. The facts, which were clarified by telephone, confirm that XXXXXXXXXX was able to transfer the commuted amount of his defined benefit entitlements under the pension plan, but cannot transfer any amount for payments made to him out of the actuarial surplus of the plan. This restriction is clearly according to the intent of the legislation.

I trust my comments have explained the Department’s position on this matter.

							Yours sincerely,

							Herb Dhaliwal, P.C., M.P.
M.Sarazin
957-2131
980619
March 20, 1998