Dear Sirs:
Re: Cumulative excess amount in respect of Registered Retirement Savings Plan ("RRSP")
This is in reply to your letter of November 26, 1990 concerning the application of the General Anti-Avoidance Rule ("GAAR") to excess RRSP contributions made after 1990.
You refer in particular to the $8,000 margin provided for in subsection 204.2(1.1) of the Income Tax Act (the "Act").
As you know, subsection 204.2(1.1) of the Act sets out the method for determining an individual's cumulative excess amount in respect of RRSPs for the purposes of the subsection 204.1(2.1) tax on excess RRSP contributions made after 1990. In general terms, the cumulative excess amount of an individual in respect of RRSPs at any time in a year is equal to the premiums the individual has paid to RRSPs after 1990 and has not deducted, less the aggregate of the RRSP deduction room available to the individual and, except if the individual is under the age of 18 at any time in the year, $8,000.
The RRSP deduction room available to an individual at any time in a year is determined pursuant to a formula contained in paragraph 204.2(1.1)(b) of the Act. The formula incorporates the $8,000 margin, where applicable. This amount is computed in the same way as the individual's RRSP deduction limit for the year, except that the amount of net past service pension adjustment ("net PSPA") which reduces the deduction room depends on the time as of which the individual's deduction room is computed.
The $8,000 margin which is added to the deduction room reduces the likelihood of the Part X.1 tax being applied where earnings fluctuate and RRSP contributions are made on the basis of a fixed percentage of current earnings. It also provides a margin of error for RRSP contributors to help smooth the transition to the new system of limits.
Where a transaction is specifically permitted by an express prevision of the Act, it is the Department's view that such a transaction, in and by itself, will not normally be considered a misuse or abuse of the provisions of the Act for the purposes of subsection 245(4) of the Act.
Should you wish to request an advance income tax ruling on a specific proposed transaction, we refer you to Information Circular 70-6R2 for the procedure to be followed.
Although we are unable to give any definite answer, we trust the above comments will be of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate