5-902302
Dear Sirs:
Re: Paragraph 8(1)(m) of the Income Tax Act (the "Act")
This is in reply to your letter of August 28, 1990 concerning the above-mentioned subject.
You enquire as to whether excess contributions to a Health and Welfare Trust can be transferred to a Pension Trust Fund on behalf of and for the benefit of employees within the provisions of paragraph 8(1)(m) of the Act.
As noted in Information Circular 70-6R2, we do not express opinions on specific proposed transactions other than as a reply to an advance income tax ruling. As a consequence thereof, we may only offer the following general comments.
From your letter, it is not clear whether the contributions made to the Health and Welfare Trust are employee contributions. You only refer to employer contributions on behalf of its employees.
In order to be considered eligible contributions under the pension plan, the amounts must comply with paragraph 8502(b) of the draft Regulations. Employee contributions are eligible if they are paid by a member of the plan in accordance with the plan as registered. Amounts transferred into the plan are eligible contributions if they comply with subparagraph 8502(b)(iv) of the draft Regulations. As it is a matter of fact that the amounts in question, whether they be employee or employer contributions, were made to the Health and Welfare trust, and not to the Pension Trust Fund, it is difficult to argue that they were paid by the member in accordance with the plan. Similarly, it would appear that they could not be Considered eligible contributions of amounts transferred by virtue of subparagraph 8502(b)(iv) of the draft Regulations.
If the amounts are employer contributions, they would fall under subparagraph 8502(b)(iii) of the draft Regulations, which, by virtue of subparagraph 8502(b)(vi) of the draft Regulations means that they must be an eligible contribution under subsection 147.2(2) of the Income Tax Act.
Based on the above, it is our opinion that the amounts to be transferred to the Pension Trust Fund are neither employer nor employee contributions to the pension plan as registered but transfers from the Health and Welfare Trust and as such are not deductible under paragraph 8(1)(m) of the Act. Furthermore in the event of such a transfer the pension plan would become revocable in accordance with paragraph 8501(2)(a) of the draft Regulations.
For the contributions made prior to 1991, it is our opinion that since there is no provision in the present Income Tax Act to allow the transfers of excess contributions to a Health and Welfare Trust to a Pension Trust Fund, such an arrangement would not qualify for the deduction under paragraph 8(1)(m) of the Act and would cause the pension plan to be deregistered.
We trust the above comments will be of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch