| 19(1) | 901610 |
| D. Duff | |
| (613) 957-3498 |
November 28, 1990
19(1)
This is in reply to your letter of July 16, 1990 concerning employee contributions to registered pension plans ("RPP") after the implementation of pension reform.
Effective for 1990 paragraph 60(j) of the Act has been amended to deny the transfer of periodic pension payments to a registered retirement savings plan ("RRSP") or a RPP. This deduction was in addition to the normal contribution limits in subsection 146(5) and paragraph 8(1)(m) for RRSPs and RPPs respectively.
New paragraph 60(j.2) of the Act allows a taxpayer to transfer periodic payments from a RPP or a DPSP to a spousal RRSP. The amount of the transfer is limited to $6,000 per year and it applies only for the years from 1989 to 1994.
The new rules for employee contributions to RPPs are in 147.2(4) of the Act. Paragraph (a) applies to contributions made after 1990 for current service and for past service relating to years after 1989. Paragraphs (b) and (c) apply to past service contributions relating to years before 1990 during which the employee was not a contributor (paragraph (b)), and while he was a contributor (paragraph (c)). They are applicable to past service contributions made in 1990 and after, for services relating to 1989 and before. The deduction under 147.2(4) is the aggregate of paragraphs (a), (b) and (c). Also, the preamble to 147.2(4) states "There may be deducted in computing the income of an individual" therefore it is deductible from income, not just earned income.
The deductions under 147.2(4)(b) is similar to the deduction previously permitted under 8(1)(m)(ii). It is equal to the least of:
(i) the total past service contributions made in the year or a previous year in relation to eligible years while the taxpayer was not a contributor, less amounts previously deducted.
(ii) $3,500, and
(iii) $3,500 times the number of years of eligible service while the taxpayer was not a contributor less amounts previously deducted.
The deduction under 147.2(4)(c) is similar to the deduction previously permitted under 8(1)(m)(iii). It is equal to the lesser of:
(i) the total past services contributions made in the year or a previous year in relation to eligible years while the taxpayer was a contributor, less amounts previously deducted, and
(ii) $3,500 less amounts deducted under 147.2(4)(a) and (b).
There is no time limit on the carry forward of past service contributions deductible under 147.2(4)(b) and (c).
On page 2 of your letter you raised concerns about the deductibility of either lump sum or annual contributions for prior years service. Such contributions made in 1990 or after for service related to years before 1989 are deductible under 147.2(4)(b) or (c) to an overall yearly maximum of $3,500 with the excess being carried forward and deductible against any income.
We trust that these comments are satisfactory to you. If you have any further questions please do not hesitate to contact the Deferred Income Plans and Trusts Sections.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate