| 19(1) | File No. 5-7720 |
| W.C. Harding | |
| (613) 957-3499 |
August 22, 1989
19(1)
Re: Retirement Compensation Arrangements Subsection 207.6(5) of the Income Tax Act (Canada) (the "Act")
This is in reply to your letter dated March 15, 1989, in which you requested our interpretation of subsection 207.6(5) of the Act.
Paragraph (1) of the definition "retirement compensation arrangement" ("RCA") in subsection 248(1) of the Act generally excludes a foreign pension plan from the scope of the definition provided that the foreign plan is maintained "primarily for the benefit of non-residents in respect of services rendered outside of Canada". Subsection 207.6(5) of the Act provides an exception to this exclusion in the case of contributions that can reasonably be considered to have been made at any time in respect of services rendered by an employee who was resident in Canada at the time the services were rendered. If the employee was already a member of the foreign plan before he became a Canadian resident, this exception applies for more than 60 of the 72 months preceding the time the services were rendered.
The only residency test set out in subsection 207.6(5) has to do with the residence status of the employee at the time of rendering the services in question. The subsection contains no requirement that the employee, the employer or the deemed the custodian be a Canadian resident at the time the contribution is made. Consequently, a contribution for past services could come within the provisions notwithstanding that it was made by a foreign employer to a foreign custodian in respect of services rendered by an employee who is a non-resident at the time the contribution is made.
If a contribution comes within subsection 207.6(5), it may nevertheless be exempted from the RCA rules by virtue of a proposed exemption discussed at pages 55-6 of the document "Saving for Retirement: A Guide to the Tax Legislation" (released by the Department of Finance in March, 1988) and further discussed in Appendix B to Department of Finance Press Release 88-110 (dated August 19, 1988). This assumes that the proposal comes into force. While the proposed exemption has not yet been finalized, we understand that it will contain the following requirements:
a) that the foreign plan be a statutory plan or superannuation, pension or retirement plan in connection with which a certificate of exemption has been issued under subsection 212(14) of the Act;
b) that the employer be a non-resident corporation or an international organization;
c) in the case of a plan of a non-resident corporation, that no member of the foreign plan participate in a registered pension plan or a referred profit sharing plan to which the non-resident corporation (or a person not dealing at arm's length with that corporation) has contributed during the years in respect of which contributions have been made to the foreign plan; and
d) that contributions made to the foreign plan on behalf of Canadian residents be reasonable when compared to contributions made on behalf of non-residents.
You may wish to contact the Department of Finance with respect to this proposal.
The comments in this letter are purely of a general nature and do not take into account considerations that might arise in the context of a specific transaction or event. As explained in paragraph 24 of Information Circular 70-6R, the comments expressed herein are not advance income tax rulings and consequently do not bind the Department.
Yours truly,
for Director Financial Industries DivisionRulings DirectorateLegislative and IntergovernmentalAffairs Branch