Principal Issues: What are the tax consequences where an employer reimburses the employee for the employee required contributions to a registered pension plan?
Position: Taxable employment benefits in accordance with sections 5 and 6.
Reasons: Sections 5 and 6.
XXXXXXXXXX 2011-040793 G. Allen
September 30, 2011
Dear XXXXXXXXXX :
Re: Reimbursement of RPP Contributions
This letter is in response to your email sent June 16, 2011, wherein you requested our views concerning an arrangement where the XXXXXXXXXX provincial government, through XXXXXXXXXX , reimburses XXXXXXXXXX for the employer contributions to registered pension plans (RPPs) that XXXXXXXXXX make in respect of XXXXXXXXXX employees. You also request our views concerning a proposal whereby XXXXXXXXXX will reimburse employees of XXXXXXXXXX up to XXXXXXXXXX % of the employees' salaries that are employee required contributions under the RPPs. We also acknowledge the information provided in your emails sent June 20, 23 and 30, 2011 and in your telephone conversations (XXXXXXXXXX ).
Written confirmation of the tax implications inherent in particular transactions may only be provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advance Income Tax Ruling", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the Internet at http://www.cra-arc.gc.ca/formspubs/menu-e.html. Further, as indicated in paragraph 20 of that Information Circular, we do not issue advance income tax rulings on budget resolutions and proposals that are not yet law, or on draft legislation. Nonetheless, we have provided some general comments below, which we hope will be of some assistance to you. However, as stated in paragraph 22 of the Information Circular, this opinion is not binding on the Canada Revenue Agency in respect of any particular situation.
Based on the information you have provided, "Our Comments" below are based on the following facts and assumptions:
- The members of the RPPs are employees of XXXXXXXXXX .
- XXXXXXXXXX are incorporated as XXXXXXXXXX and are not subject to income taxes (your June17/11 email). After reviewing IT-496R Non-Profit Organizations (NPOs), it is your belief that XXXXXXXXXX are NPOs for purposes of paragraph 149(1)(l) of the Income Tax Act (the "Act") (your June 30/11 email).
- XXXXXXXXXX reimburses XXXXXXXXXX for the employer contributions that XXXXXXXXXX actually make to the RPPs equal to XXXXXXXXXX % of the employee's salaries.
- XXXXXXXXXX regulates, provides funding, operating grants, and other support to XXXXXXXXXX . Under the act and regulations governing XXXXXXXXXX , they are prevented from XXXXXXXXXX that operate for profit.
- XXXXXXXXXX is proposing to reimburse employee contributions to the RPPs equal to XXXXXXXXXX % of the employee's gross salaries. XXXXXXXXXX will reimburse employee contributions by paying the reimbursement to XXXXXXXXXX . XXXXXXXXXX will then reimburse employees through XXXXXXXXXX normal payroll process. XXXXXXXXXX is only permitted to make payments to licensed XXXXXXXXXX and not to individuals.
Our Comments
Provided XXXXXXXXXX must actually make employer contributions to RPPs in respect of employees of XXXXXXXXXX , in our view, the conditions of subparagraph 8502(b)(ii) of the Income Tax Regulations would be satisfied. Where XXXXXXXXXX , acting on behalf of the provincial government, reimburses XXXXXXXXXX for the employer RPP contributions made, in our view, the reimbursement would be provincial grants and payments or income received by XXXXXXXXXX .
Concerning the proposal where a portion of employee required contributions to the RPPs would be reimbursed, it is our understanding that XXXXXXXXXX XXXXXXXXXX would reimburse XXXXXXXXXX , which in turn through XXXXXXXXXX payroll system would reimburse employees for a portion of the employee required contributions to the RPPs. Accordingly, in our view, the reimbursement to the employees for the employee required RPP contributions would be a taxable employment benefit to the employee and included in the employees' income under sections 5 and 6 of the Act.
We trust that our comments will be of assistance to you.
Mary Pat Baldwin, CA
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch