5-920081
24(1) D. S. Delorey
(613) 957-8953
Attention: 19(1)
February 5, 1992
Dear Sirs:
This is in reply to your letter of December 31, 1991 concerning the extent to which a retiring allowance can be "rolled over" to a registered retirement savings plan ("RRSP") under paragraph 60(j.1) of the Income Tax Act (the "Act.
Your letter concerns a situation where a company is downsizing and pays to the relevant employees a retiring allowance. The employees are members of a defined benefit pension plan and are entitled to certain termination benefits under the plan. It appears that your enquiry relates to specific transactions, either proposed or completed. Where a transaction is proposed, written confirmation of the tax implications inherent therein should be sought by way of an advance ruling request submitted in the manner set out in Information Circular 70-6R2. Where the transaction is completed, the enquiry should be addressed to the relevant District Taxation Office. We offer, however, the following general comments.
Where an individual suffers a loss of office and his pension plan provides that he may elect, with respect to particular years of service prior to 1987, to receive out of the plan only his own contributions plus the related earnings, and the result of the election is that the vesting of the employer's contributions is forfeited for those years, it is our view that the $1,500 referred to in clause 60(j.1)(ii)(B) of the Act would apply for each of those years where such an election has been made at the time the retiring allowance is paid. These comments would apply regardless of the fact that an amount equal to his own contributions and related earnings is directly transferred to a locked-in registered retirement savings plan or that the individual might be entitled to a deferred pension with respect to years of service after 1986.
Where the above election is not made but the individual instead elects to receive a deferred pension, the result of which is that employer contributions under the plan remain vested for all years of pensionable service, it is our view that the $1,500 referred to in clause 60(j.1)(ii)(B) of the Act would not be available for any of those years notwithstanding that the commuted value of the deferred pension with respect to years prior to 1987 is equal to the individual's contributions plus related earnings.
Where employer contributions under a pension plan are not 100% vested for particular years of service, the "equivalent number of years of vesting" for those years must be determined. The manner in which this determination is made is explained in paragraph 13 of Interpretation Bulletin IT-337R2.
Our comments are an expression of opinion only and are not binding on the Department as explained in paragraph 21 of Information Circular 70-6R2. We trust however that they are of assistance.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate