F. Francis (613) 957-3498
February 1, 1988
Dear Sirs:
Re: Payments from a Pension Plan
This is in reply to your letter of November 30, 1987, wherein you requested our views with respect to payments from a registered pension plan (RPP) in the following situation:
- A refund of surplus in the RPP is erroneously made to the employer who includes the amount in income under subparagraph 56(1)(a)(I) of the Income Tax Act (the "Act"). - It is determined subsequently that the RPP requires that the employees are entitled to the surplus. - Consequently, the employer recontributes the surplus to the RPP.
You request us to outline the tax treatment resulting from these transactions from both the employer's perspective and the employee's perspective.
It is your view that the employer will be entitled to a deduction for income tax purposes equal to the amount recontributed to the pension plan.
In our opinion, a payment made by an employer in the year to or under a RPP in respect of services rendered by employees is only deductible pursuant to either paragraph 20(l)(q) or paragraph 20(l)(s) of the Act. If the provisions of neither of these paragraphs is satisfied, the contribution would not be deductible.
Any amount received by an employee in the year as a superannuation or pension benefit is included in his income for tax purposes under subparagraph 56(1)(a)(I) of the Act.
The above comments are an expression of opinion only and are not binding on the Department. They are, however, our best interpretation of the relevant legislation as it applies generally and we trust they are of assistance to you.
Yours truly,
For Director Financial Industries Division Rulings Directorate