| 5-923023 | |
| D. S. Delorey | |
| 957-8953 |
Department of Finance and Treasury Board of Canada140 O'Connor StreetOttawa, OntarioL1A 0G5
Attention: P. Plouffe
Pay and Benefits
October 28, 1992
Dear Sir:
This is in reply to your letter of October 5, 1992 concerning the transfer of funds from the pension plan of a private employer to the Public Service Superannuation Account ("PSSA").
You mention that where an employee joins the public service and funds are transferred from his previous pension plan ("RPP") to the PSSA, the transferred funds may not be sufficient to satisfy the requirements under the PSSA. For example, the employee may have had 10 years of pensionable service under the previous RPP but the transferred funds are sufficient to acquire only 5 years of pensionable service under the PSSA. The other 5 years would be considered elective service under the PSSA. Ms. Susan Fowler of the Superannuation Branch of Supply and Services Canada has suggested that Revenue Canada considers those elective service years to be years during which the employee was not a contributor to any pension plan.
For the purposes of determining the deductibility under subsection 147.2(4) of the Income Tax Act (the "Act") of contributions made in respect of those elective service years, you ask us to confirm that they would be treated as years during which the employee was not a contributor to any pension plan.
Our Comments
It is our view that such elective service years would be years during which the employee contributed to his former pension plan and we are not aware of having previously said otherwise. We are thus unable to confirm that those years would be considered to be years during which the employee did not contribute to any pension plan. Consequently, contributions for those years would be deductible as follows.
Elective Service Years After 1989
Where contributions to the PSSA are for such post-1989 elective service years, they are deductible in full under paragraph 147.2(4)(a) of the Act in computing the employee's income for the year in which the contributions were made. For example, if in 1992 there were withheld from an employee's salary $4,000 for 1992 service and $6,000 for elective service in 1990 and 1991, the employee would be entitled to deduct the full $10,000 in computing his 1992 income.
Elective Service Years Before 1990
1. Where the employee did not contribute to the PSSA during the pre-1990 elective service years and the contributions to the other RPP were made
(a) before March 28, 1988, or
(b) after March 27, 1988 pursuant to a written agreement that was entered into before March 28, 1988
the deduction allowable in computing income for the year in which the contribution is made is the least of
(a) the amount contributed,
(b) $3,500, and
(c) $3,500 multiplied by the number of years (including part years) of elective service to which the contributions relate, minus the amounts already deducted for past-service contributions for those years. Any part of the contribution not deductible in the year it was made may be deducted in subsequent years. The maximum amount deductible in any subsequent year is the least of
(d) the undeducted amount,
(e) $3,500, and
(f) $3,500 multiplied by the number of elective service years to which the contributions relate, minus the amounts already deducted for past-service contributions for those years.
2. Where the employee contributed under the PSSA during the pre-1990 elective service year, or the contributions to the other RPP for the pre-1990 elective service were made after March 27, 1988 and not pursuant to a written agreement entered into before March 28, 1988, the amount deductible in computing income for a particular taxation year is the lesser of
(a) all contributions made in the year and in all previous years for such service, minus all amounts deducted for those contributions in computing income for previous years, and
(b) $3,500 minus the sum of
(i) contributions deducted in computing income for the year with respect to service performed after 1989 (including contributions for current service and past service after 1989), and
(ii) contributions deducted in computing income for the year with respect to pre-1990 past service while not a contributor.
Generally speaking, this limitation has the effect of not allowing the contributions for the elective service years to be deducted until the employee has ceased contributing for current service; e.g., until the employee has retired.
We trust our comments are of assistance.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate