| 19(1) | File No. 5-9259 |
| A.B. Adler | |
| (613) 957-8962 |
January 12, 1990
Dear Sirs:
This is in reply to your letter dated December 13, 1989 in which you requested our views with respect to the impact of the November 2, 1988 decision in Arthur E. Walton v MNR (T.C.C.) upon the deductibility of the interest employment of instalment payments make to a registered pension plan ("RPP") to acquire past service thereunder.
Our comments follow.
Commencing January 1, 1989 such payments will be treated as amounts contributed to the RPP for purposes of paragraphs 8(1)(m) and 60(j) of the Income Tax act ("Act") (or of any relevant new provisions under the proposed Pension Reform legislation).
Effect of New Position
1. 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. Further, 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.
2. 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 amounts that exceed 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.
3. 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 make after November 12, 1981. Taxpayers who made the election to purchase the past service before November 13, 1981, may claim the instalment interest as an other 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 will be transferred to new provisions of the Act.
We trust that our comments will be of assistance to you.
Yours truly,
for DirectorFinancial Industries Division Rulings Directorate