5-910954
Dear Sirs:
Re: RRSP Deduction Limit
We are writing in reply to your request for a technical interpretation concerning the above-noted matter in respect of the 1990, 1991 and subsequent taxation years. You have included two examples of an employee who is a member of your defined benefit pension plan and have provided details concerning the types of benefits provided by the plan and the employee's particular situation as it relates, among other things, to years of pensionable service.
Confirmation of the Department's position concerning past occurrences should be obtained from your local district taxation office. If your queries concerning the 1991 and subsequent taxation years relate to a proposed transactions a request for an advance ruling should be made in accordance with the guidelines set out in Information Circular 70-6R2. We will provide the following non-binding opinion, however, for your assistance.
The RRSP deduction limit for the 1990 taxation years is described in subsection 146(5) of the Income Tax Act (the "Act") as that provision reads for the 1989 and 1990 taxation years. An employee who is a member of a pension plan in the year and as a consequence of his employment is or may become entitled to benefits under a pension plan in respect of his employment is limited to a deduction equal to the lesser of $3,500 and 20% of earned income. If the employee is not or will not become entitled to pension benefits as a consequence of his employment in 1990, the limit is the lesser of $7,500 and 20% of earned income. Where no pension benefits accrue in 1990, because an employee reached the maximum number of years of pensionable service in 1989, and the employee's earned income in 1990 is $100,000, his maximum RRSP contribution for 1990 will be $7,500. A pension adjustment ("PA") is not calculated for purposes of the 1990 RRSP deduction limit.
With respect to subsequent taxation years, no PA can occur since pension benefits do not accrue in years subsequent to the year in which the maximum pensionable service is reached.
If an employee concludes his maximum pensionable service during a taxation year after 1989, his PA in the year will be calculated for that portion of the year for which pension benefits accrue and will reduce his RRSP deduction limit in the following taxation year in accordance with paragraph 146(1)(g.1) of the Act.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate