7-910832
Your files HAU 8199-9, HAU 8282-2-20(1(S)
This is in reply to your memorandum of March 18, 1991, regarding the deductibility of administration expenses for a registered pension plan (RPP) incurred by an employer.
Prior to its revision, paragraph 20(1)(q) of the Income Tax Act (the "Act") referred to payments made by an employer to or under a RPP in respect of services rendered by employees. Paragraph 20(1) (s), prior to being repealed, referred to payment made under a RPP in respect of employee services pursuant to an actuarial recommendation that the plan's resources should be augmented by at least the amount of the payment to fund the plan's obligation. Both of these provisions indicate that the payments are to be made to the plan in respect of employee services and paragraph 20(1)(s) indicate the purpose of the payments is to fund the plan's liabilities. Neither of these paragraphs would permit a deduction for payments made to the administrator of the plan for administering it. In answer to your question on page 1 of your memorandum, administration expenses not deductible under 20(1)(q) would not be deductible under 20(1)(s). However as stated in IT-105 such payments are a deductible business expense and are not prohibited by section 18. As explained in paragraph 4 of IT-363R, this is similar to the Department's position regarding administration expenses for deferred profit sharing plans. Consequently, it is our position that the administration expenses for both plans submitted should not be deducted under paragraph 20(1)(s).
We discussed the revision to the pension provisions of the Act with Simon Thompson of the Department of Finance. He advised us that their intention was to permit the administration expenses to flow through the plan, hence, the reference in the technical notes. He also indicated that they were not listed as a permissable distribution in paragraph (d) of draft regulation 8502 because it was considered to be an expenses and not a distribution.
21(1)(b)
If there is a problem with approving contributions to defined benefit plans that include administration expenses, please notify us or the Department of Finance.
for DirectorFinancial Industries DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch