June 2, 1993
| Registered Plans Division | Financial Industries Division |
| Ms Stella Kotlar | P. Spice 957-8953 |
| Director |
Attention: John O'Meara
Application of Part X.1 Tax to a 1989 Over-Contribution to a Registered Retirement Savings Plan
This is further to our meeting of May 21, 1993, in which you asked us to consider the above-noted matter. Specifically, you enquired whether an excess amount contributed to a registered retirement savings plan (RRSP) in 1989 could enter into the calculation for the "cumulative excess amount" as described in subsection 204.2(1.1) of the Income Tax Act (the "Act"). If so, it would then be subject to taxation under two different provisions. Our analysis follows.
The taxes described in Part X.1 of the Act are levied on certain amounts held in a RRSP at the end of a month. A tax on an "excess amount" in a RRSP at the end of any month after May, 1976, is required to be paid under subsection 204.1(1), and a tax on a "cumulative excess amount" in a RRSP at the end of any month after December, 1990, is required to be paid under subsection 204.1(2.1) of the Act. The former subsection is applicable for months ending after May 1976 and continues to apply, while the latter subsection is applicable after 1990.
The "cumulative excess amount" is the excess of an individual's "undeducted RRSP premiums at any time in a taxation year" over, in essence, your current year's RRSP deduction limit plus the $8000 buffer (subsection 204.2(1.1) of the Act). This subsection is applicable after 1988. If a 1989 contribution can be factored into the calculation of the undeducted RRSP premiums, then it would increase the amount of the individual's cumulative excess amount.
The formula in subsection 204.2(1.2) (also applicable after 1988) which is used to calculate the "undeducted RRSP premiums of an individual at any time in a taxation year" is expressed as
H + I - J
For the sake of this analysis, we will choose 1992 as the taxation year for which the calculation is being done.
In our discussions, it was the element identified as "I" under which a 1989 contribution appeared to fit. In particular, subparagraph 204.2(1.2)I(a) includes a premium "paid by the individual in the year and before that time" under the individual's or the spouse's RRSP. Ostensibly, a 1989 contribution is such a premium.
We agree that "the year" would be, in our example, the 1992 taxation year, but in our opinion the words "before that time" refer to the moment in time at which the tax is to be calculated. In other words, the subparagraph requires that premiums paid in 1992 and before the end of the month be taken into account. It does not require that premiums paid before 1992 be considered.
The tax under subsection 204.1(2.1) is levied on an amount existing "at the end of any month". The amount is then defined in subsections 204.2(1.1) and (1.2) so as to encompass amounts existing at any point in a particular taxation year. This is necessary since the amount must be determined 12 times a year. The words in subparagraph 204.2(1.2)I(a) could be capable of bearing two different interpretations, but given the requirements of the taxing section the better view is that the premiums to be included are those paid in the taxation year and before the moment in time that the tax is exigible. Furthermore, if the intent of the provision were to require that one include amounts paid in a year and before that same year, it would be better expressed merely to identify the amounts as those "paid before the end of the taxation year", or words to that effect.
We note that the explanation of the Part X.1 taxes provided in the 1992 Pension and RRSP Tax Guide (at pages 36 to 39) evidences a similar approach to the one set out above.
We trust our comments are helpful.
for DirectorFinancial Industries DivisionRulings Directorate