R. Nanner (613)957-3494 November 10, 1987
Dear Sirs:
This is in reply to your letter of October 21, 1987 wherein you described the following situation:
Canadian residents are working for a Canadian employer that is related to a U.S. company. These individuals have always been employed in Canada but contributions have been made by the U.S. company to the U.S. pension plan on their behalf. The U.S. plan is currently being wound-up, and your client would like to be able to deal with the funds belonging to Canadian residents so as to maintain their tax deferred status.
You asked us the following question in respect of the above described situation:
If a deferred annuity is purchased in the U.S. by the trustee of the pension plan, will the Canadian resident be deemed to have received the whole lump sum in that calendar year or will he be able to defer tax until the annuity is paid out on retirement?
Provided an annuity can be purchased under the terms of a pension plan, the trust remains its legal and beneficial owner, and the employee cannot commute it, the employee would be taxed on the annuity payments at the time of receipt. If, however, the annuity is in the name of the employee or if he can alter the terms of the annuity (including its commutation), the employee would be taxed at the time the annuity is purchased. The above comments are based on the assumption that no contributions will be made to the plan after 1987 with the result that the retirement compensation arrangement rules of Bill C-64, which is not yet enacted into law, will not be applicable in this situation.
We hope these comments are of assistance to you.
Wayne Douglas for Director Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch