| 19(1) | File No. 5-9285 |
| Maureen Shea-DesRosierss | |
| (613) 957-8953 |
February 5, 1990
Dear Sir:
Re: Paragraph 8(1)(m) of the Income Tax Act Our file: 5-7586
As requested in our telephone conversation 19(1) Shea-DesRosiers) of December 22, 1989, we are confirming in writing our verbal response to you of December 7, 1989 regarding your question of deduction of past service contributions as first formulated by you in your letter of February 20, 1989.
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Accordingly, paragraph 8(1)(m) of the Act allows a deduction in respect of these contributions equal to the lesser of the amount of the contribution and $3,500 less, in either case, the amount of any deductions for the year in respect of current services and past services for years in which the employee was not a contributor to the plan. Subsection 8(8) of the Act allows the individual to carry the undeductible amount forward and to make a claim in subsequent years subject to the same limits noted above.
As for the deductibility of the interest element of instalment payments made under an agreement to acquire past service under an RPP, commencing January 1, 1989, such payments will be treated as amounts contributed to the RPP for purposes of paragraph 8(1)(m) and 60(j) of the Act.
For the taxpayer who has no pension income, his total cost of buying back past service under an RPP (including instalment interest) will be treated as a deductible contribution to the RPP for 1989 and subsequent years. Such contributions will be deductible in the year they are made, subject to the limits under paragraph 8(1)(m) of the Act. Any undeductible excess thereunder may be carried forward under subsection 8(8) of the Act and will be deductible by the taxpayer in a subsequent year or years subject to the limits under paragraph 8(1)(m) of the Act.
For the taxpayer in receipt of pension income, in 1989 he will also be able to use paragraph 60(j) of the Act to deduct any amount that exceeds the limits under paragraph 8(1)(m) of the Act to the extent of any pension income in the year. Under the proposed pension reform legislation he will not be able to do this after 1989.
For all taxpayers, the non-deductible amounts of contributions to an RPP (i.e. instalment interest) made during 1988 and previous years will now be considered to be non-deductible pension contributions carried forward under subsection 8(8) of the Act, and thus may be deducted in future years subject to the limits under paragraph 8(1)(m) of the Act.
Please note that the revised position as stated above is only applicable in respect of elections made after November 13, 1981. Taxpayers who made the election to purchase past service before November 13, 1981, may claim the instalment interest as another deduction or as a past service contribution.
It should be noted that under the proposed pension reform legislation the detailed rules in subparagraphs 8(1)(m)(i) to (iii) and in subsection 8(8) of the Act are being transferred to new subsection 147.2(4) of the Act.
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We trust the above comments will be of assistance to you.
Yours truly,
Wayne Douglas for DirectorFinancial Industries DivisionRulings Directorate