Principal Issues: Will an amount be attributed to the contributor to a spousal or common-law partner plan if funds from the plan are transferred to an RPP to fund a purchase of pre-reform service for the annuitant of the RRSP?
Position: Not if the transferred funds are used to fund a legitimate past-service purchase.
Reasons: The RRSP attribution rule in 146(8.3) does not apply to payments from an RPP.
XXXXXXXXXX 2005-013595 P. Kohnen, CMA June 30, 2005
Dear XXXXXXXXXX:
Re: Technical Interpretation - Transfer from Spousal RRSP to RPP
This is in response to your submission of June 8, 2005, and our prior telephone conversation (Kohnen/XXXXXXXXXX), in which you requested our written comments in respect of a buy-back of past service in a registered pension plan ("RPP").
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.
Our comments
Paragraph 8503(3)(e) of the Income Tax Regulations (the "Regulations") provides that benefits provided in an RPP in respect of periods before 1991 (commonly referred to as "pre-reform service") must be acceptable to the Minister. Various documents such as Information Circular 72-13R8 - Employees' Pension Plans and Registered Plans Directorate Newsletters 92-8R - Eligible Service and 92-12 - Commutation and Opting out of a Pension Plan describe the administrative rules relating to eligible pre-reform service. Should you or the administrator of the RPP in which the service is being purchased have any questions concerning the application of these rules, you may wish to contact the Registered Plans Directorate, which is the authority within the Canada Revenue Agency responsible for registering and monitoring RPPs to ensure their compliance with the Income Tax Act (the "Act") and Regulations. The English General Inquiries telephone number at RPD is (613) 954-0419.
Your submission noted that the purchase of the pre-reform years in question under the RPP will be paid for using funds transferred from a "spousal or common-law partner plan" (hereafter referred to simply as a "spousal RRSP" for purposes of this document) as defined in subsection 146(1) of the Act. Subsection 146(8.3) of the Act provides a special rule which, when applicable, attributes to the taxpayer who contributed to the plan, all or part of certain amounts withdrawn out of a spousal RRSP that, in the absence of this rule, would usually be included in the income of the contributor's spouse, who was the annuitant under the plan. Generally, this attribution rule will apply where an annuitant withdraws an amount from a spousal RRSP and the annuitant's spouse has contributed to a spousal RRSP for that annuitant in the year of withdrawal or in the two previous years. This special rule is designed to discourage the short-term use of spousal RRSPs as a means of income splitting.
Paragraph 146(16)(a) of the Act allows for a tax-sheltered transfer of property from an RRSP to an RPP for the benefit of the annuitant of the RRSP. In our view, when amounts are transferred to an RPP from a spousal RRSP for the benefit of the annuitant, the contributor to the RRSP does not have to include in income amounts that were contributed to a spousal RRSP for the annuitant in the year of the transfer or in the two years immediately preceding the year of the transfer. Furthermore, it is also our view that if the amount transferred from the spousal RRSP has been used to fund a legitimate purchase of defined benefit past-service benefits under an RPP, the Act will not require any amount to be attributed to the income of the contributor to the spousal RRSP, upon commencement of periodic retirement benefits from the RPP.
We trust that the above comments will be of assistance to you. Please do not hesitate to contact Mr. Phil Kohnen at (613) 957-2093 should you require further information.
Yours truly,
Roberta Albert, CA
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate