Principal Issues: [TaxInterpretations translation] Can the terms of a DPSP allow its members to withdraw all or part of the amounts allocated to them under the plan while remaining employed by the employer?
Position: Yes
Reasons: Ability to withdraw amounts under paragraph 147(2)(k) or transfer amounts to an RRSP, RPP or other DPSP if the conditions of subsection 147(19) are satisfied.
2008-030476 XXXXXXXXXX Catherine Ayotte, Notary, M.Fisc.
April 27, 2009
Dear Madam,
Subject: Withdrawals from a DPSP
This is further to your letter of December 18, 2008 and an email of April 14, 2009 in which you asked our opinion on the amounts that members may withdraw, either in whole or in part, from a deferred profit sharing plan (DPSP) while remaining employed by the employer.
Please note that unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
It appears to us that the situation described in your letter could constitute an actual situation involving taxpayers. As explained in Information Circular 70-6R5, it is not this Directorate’s practice to comment on proposed transactions involving specific taxpayers otherwise than in the form of an advance income tax ruling. If your situation involves a specific taxpayer and a completed transaction, you should provide all relevant facts and documents to the appropriate Tax Services Office for its views. We are, however, prepared to provide the following general comments that may be of assistance to you.
By reason of the text in paragraph 147(2)(k) before subparagraph (i), a DPSP may permit its members to withdraw all or part of their accrued entitlements under the plan while remaining employees.
Another alternative is available if circumstances allow. By virtue of subsection 147(19), amounts in a DPSP may be transferred to a registered pension plan (RPP), a registered retirement savings plan (RRSP) or another DPSP.
A direct transfer of an amount complies with subsection 147(19) if it is made on behalf of an individual from a DPSP to an RPP, to the individual's RRSP or to another DPSP for the benefit of the individual. An amount is transferred in accordance with this subsection only if it is not part of a series of periodic payments. Only amounts that would be included in computing the individual's income under subsection 147(10), if paid directly to the individual, may be transferred under this subsection. A transfer can only be made on behalf of an individual if:
- the individual was an employee or former employee of an employer who participated in the plan on behalf of the employee;
- the individual was, on the date of death of the employee or former employee, the spouse of the employee or former employee (see Glossary) and is entitled to the amount because of the death of the employee or former employee.
In our view, the provisions in paragraph 147(2)(k) and subsection 147(19) apply even if the members are employees when withdrawing or transferring funds from a DPSP.
For more information on this topic, see paragraphs 16(k), 37 and 38 of Information Circular 77-1R5 Deferred Profit Sharing Plans1 and paragraphs 1 and 2 of Interpretation Bulletin IT-528 Transfers of Funds between Registered Plans2.
We hope that our comments are of assistance.
Best regards,
Ghislain Martineau
Manager
Financial Sector and Exempt Entities Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.
ENDNOTES
1 Available on the Canada Revenue Agency (CRA) website at http://www.cra-arc.gc.ca/E/pub/tp/ic77-1r5/ic77-1r5-e.pdf.
2 Available on the CRA website at http://www.cra-arc.gc.ca/E/pub/tp/it528/it528-e.html.