| 19(1) | File No. 5-8545 |
| D.S. Delorey | |
| (613) 957-4395 |
January 23, 1990
Dear Sirs:
This is in reply to your letter of August 17, 1989 concerning special contributions to a registered pension plan ("RPP"). We apologize for the delay in replying.
Where the requirements of paragraph 20(1)(s) of the Income Tax Act (the "Act") are otherwise met, you ask if a deduction under that paragraph is available where
(a) before the beginning of a calendar year, an employee arranges with his employer to defer the salary that would otherwise be received by the employee in the following year in respect of services to be performed by the employee in the following year,
(b) the deferred salary is paid into an RPP by the employer, and
(c) the payment is made in respect of current or past services of the employee.
You further ask if the deferred salary mentioned in (a) above is required to be included in the employee's income for that following year pursuant to either subsection 5(1) or paragraph 6(1)(a) of the Act.
Our Comments
Your query appears to relate to a proposed transaction involving a specific taxpayer or taxpayers. As noted in Information Circular 70-6R, the Department is not prepared to provide written opinions on proposed transactions other than in reply to advance ruling requests submitted in the manner set out in that Circular. We nevertheless offer the following general comments.
Where the paragraph 20(1)(s) payment is made in respect of current services, a contribution by an employer in a situation such as that described above would normally be deductible by the employer, and the wages foregone by the employee would normally not be considered to be income of the employee in the subsequent year. However, where the paragraph 20(1)(s) payment in respect of the past services, the type of situation described above is addressed in subsection 8503 (21) of the Draft Amendments to the Income Tax Regulations to Saving for Retirement. Our current position where past services are concerned is that if a review of the plan indicates that it does not meet the policy and objects of the Act (e.g., normal contribution limits are exceeded), we will not register the plan.
We trust that the above comments will be of assistance.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate