Principal Issues: Does the Income Tax Act impose a requirement that an employer directly transfer a portion of a remuneration payment to an RRSP if the employee so directs?
Position: No.
Reasons: The law only allows for relief from withholding if such a transfer does occur; it does not mandate such a transfer.
XXXXXXXXXX 2004-010383 P. Kohnen, CMA December 7, 2004
Dear XXXXXXXXXX:
Re: Technical Interpretation - Direct Transfer of Remuneration to RRSP
This is in response to your e-mail submission of November 18, 2004 to Terry Young of our Directorate, and our subsequent telephone conversation (XXXXXXXXXX/Kohnen) in which you requested our comments on whether the Income Tax Act (the "Act") imposes a requirement on an employer to transfer a lump sum remuneration payment to an employee's registered retirement savings plan ("RRSP"), if the employee so directs.
Written confirmation of the tax implications inherent in particular transactions are 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 enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following general comments, which may be of assistance.
Our comments
In accordance with paragraph 100(3)(c) of the Income Tax Regulations, the portion of a payment, or payments, of remuneration, which is deducted or withheld from the gross payment amount, as a premium under an RRSP, will be deducted from the amount of remuneration which is subject to withholding tax, if the employer believes on reasonable grounds that the premium is deductible under paragraph 60(j.1) or subsection 146(5) or (5.1) of the Act for the taxation year in which the payment of remuneration is made.
This provision allows an employer to reduce the amount of tax withheld in respect of a payment of remuneration to better approximate the employee's tax liability, in situations in which some or all of the gross remuneration to be paid will be transferred to an RRSP, resulting in a deduction from income for the employee.
However, the Act does not specifically impose a requirement that the employer transfer a payment of remuneration to an RRSP at the request of the employee. Whether such a requirement is imposed by some other statute, or by the terms of the employment contract, will be a question of fact.
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 Industries Division
Income Tax Rulings Directorate