Principal Issues: Where a member of a defined benefit RPP terminates employment and elects to receive a deferred pension, is the member's pension limited to the defined benefit limit at the time the member terminates employment or the defined benefit limit in effect at the time the member begins to receive their deferred pension.
Position: The member's pension is limited by the defined benefit limit in effect for the year the member begins to receive their pension.
Reasons: Wording of paragraph 8504(1)(a) of the Regulations.
XXXXXXXXXX 2004-005938 G. Allen June 22, 2004
Dear XXXXXXXXXX:
Re: Regulation 8504 - Deferred Vested Pensions
This letter is a reply to your electronic message of January 26, 2004 regarding the application of subsection 8504(1) of the Income Tax Regulations (the "Regulations") to members of a defined benefit 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 submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the Canada Revenue Agency ("CRA"). All publications referred to herein can be accessed on the CRA website at the following address: http://www.cra-arc.gc.ca/tax/technical/incometax/menu-e.htm l.
In your e-mail, you appear to enquire about the application of paragraph 8504(1)(a) of the Regulations to a situation where a member leaves their pension in an RPP and defers receipt of their pension until age 60, and to the situation where a member chooses to commute the value of their pension at age 45 and begin to receive their pension at age 60. We have forwarded the issue of the application of paragraph 8504(1)(a) of the Regulations to the second situation, i.e., the calculation of a member's commuted value, to the Actuarial Division of the Registered Plans Directorate for their consideration and reply.
Paragraph 8504(1)(a) of the Regulations limits the amount of lifetime retirement benefits (LRBs) that can be paid to a member under a defined benefit provision of an RPP for the calendar year in which the LRBs commence to be paid. In accordance with paragraph 8504(1)(a) of the Regulations, the member's LRB in the year the member begins to receive their LRB is limited to the defined benefit limit in effect for the year the member commences to receive their LRB. Therefore, in our view, where a member of a defined benefit RPP terminates employment and leaves their pension in the RPP, the member's pension in the year the member begins to receive their pension will be limited by the defined benefit limit in effect for that year.
We trust the above comments will be of assistance.
Yours truly,
Roberta Albert, CA
Manager
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch