| April 4, 1990 | |
| Windsor District Office | Head Office |
| Mr. P. Gamage | Financial Industries Division |
| Chief of Audit | A.B. Adler |
| (613) 957-8962 | |
| File No. 7-4797 |
SUBJECT: Re: Past Service Contribution by Employer Under Registered Pension Plan ("RPP")
This is in reply to your memorandum dated March 1, 1990 prepared by E. Faubert, Audit Division, in which you requested our comments concerning certain past service contributions by the 24(1) ("Employer") to 24(1) an RPP).
The issues, as we understand them, are whether (i) a past service pension contribution by the Employer to 24(1) that is on behalf of certain employee's obligations thereunder as distinct from the Employer's obligations thereunder, would give rise to a taxable benefit by reason of paragraph 6(1)(a) of the Income Tax Act ("Act"), and (ii) if so, would the employee be entitled to claim deductions under paragraph 8(1)(m) of the Act.
In our view paragraph 6(1)(a) of the Act would apply to a past service contribution by the Employer to 24(1) respect of an employee's obligation to make such contributions thereunder. This position is consistent with rulings and opinions given by this Division over the years. Further, the employee will be entitled to a deduction under paragraph 8(1)(m) of the Act to the extent permitted in the year of contribution and, when applicable, in subsequent taxation years.
We are not persuaded that different income tax consequences should arise where the employer arranges under a collective agreement to make a direct contributions to an RPP in respect of an employee's past service obligations to enable him to make the contribution to the RPP.
You also indicated concern that if the amounts were brought into income under paragraph 6(1)(a) of the Act and deductions were allowed under paragraph 8(1)(m) therein, there would not necessarily be a matching of such income and deductions in the same year, and provided an example to illustrate this. We agree that a deferral of deductions will arise in your example and this is consistent with the positions outlined in paragraphs 6 and 10 of Interpretation Bulletin, No. IT-167R5 and in paragraph 6(a) of Income Tax Ruling. No. 2. Further, the deferral of the deduction of a portion of an employees past service contributions under an RPP is a matter of tax policy and, as such, is the responsibility of the Department of Finance. Note that the contribution of such deferrals in respect of years of service prior to 1990 is provided for in proposed paragraphs 147.2(4)(b) and (c) prior to 1990 is provided for in proposed paragraphs 147.2(4)(b) and (c) of the Act in clause 16(1) of Bill C-52.
We trust that our comments will be sufficient for your purposes.
for Director Financial Industries DivisionRulings Directorate