| 19(1) | File No. 5-9205 |
| D. Duff | |
| (613) 957-3498 |
January 18, 1990
Dear Sirs:
This is in reply to your letter of December 1, 1989 in which you requested a written statement of our revised policy concerning the deductibility of the interest component of past service contributions to a registered pension plan (RPP).
Commencing January 1, 1989, the total cost of buying back past service including the interest element will be considered a past service contribution to the RPP for purposes of paragraph 8(1)(m) of the Income Tax Act (the "Act") regardless of whether or not the interest payment is broken out separately from the total payment.
This revised position is applicable in respect of instalment payments to a RPP made after 1988 under a past service election entered into after November 12, 1981. For elections made before November 13, 1981, the instalment interest may be claimed as an other deduction or as a past service contribution.
Beginning in 1989, any previously non-deductible instalment interest paid to the RPP in 1988 and previous years on past service elections made after November 12, 1981 will be considered as non-deductible pension contribution carried forward under subsection 8(8) of the Act and will be deductible in future years subject to the limit under paragraph 8(1)(m) of the Act.
Finally, it should be noted that taxpayers in receipt of pension income will be able, in 1989, to use paragraph 60(j) of the Act to deduct the excess of the total 1989 pension contribution over the amount deductible under paragraph 8(1)(m) of the Act to the extent that this additional deduction does not exceed the pension income in 1989. Under proposed pension reform, paragraph 60(j) of the Act will not be available for this purpose after 1989.
We trust that our comments are of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate