7 - 912949
Subject: Amortization of Pension Surplus Income Tax Treatment to Employer
This is in reply to your memorandum of October 24, 1991 concerning the income tax implications where an employer amortizes for accounting purposes, but not for income tax purposes, an actuarial surplus ln its pension plan.
13(1)(c)
Our Comments
It is our view that there is nothing in the Act that would require an employer to include the amortized surplus in computing its income for tax purposes, notwithstanding that the CIDA handbook recommends that it do so for accounting purposes. Likewise, there is nothing in the Act allowing an employer to deduct on an amortizable basis any actuarial shortfall in the funding of its pension plan, notwithstanding that the CICA handbook recommends that this also be done for accounting purposes.
The relevant provision governing an income inclusion with respect to a pension plan is subparagraph 56(1)(a)(i) of the Act and an employer will be taxed under that provision only where an amount is paid out of the plan to the employer, whether with respect to a surplus in the plan or otherwise. In this regard, note that the definition of "superannuation or pension benefit" in subsection 248(1) of the Act specifically includes a payment out of the plan to the employer. The relevant provisions governing deductions by an employer with respect to the funding of a pension plan are paragraph 20(1)(q) and subsection 147.2(1) of the Act, and a deduction is available under those provisions only where the qualifying contribution is made in the year or within 120 days thereafter.
for DirectorFinancial Industries DivisionRulings Directorate