Revenue Canada Taxation Head
Peter K. Noack (613) 957-8953
November 28, 1986
Dear Sirs:
This is in reply to your letter of October 3 concerning payments made under an agreement to provide supplementary pension income. You have attached a copy of the agreement with dates and names of the parties deleted.
The agreement provides for a supplemental annual retirement pension equal to 70% of the final average earnings less the amount of the annual retirement pension in normal form which we assume to be the amount payable under the employer's registered pension plan. Under the terms of the agreement, the retired employee must hold himself available for reasonable consulting sessions with the employer at the employer's request without fee.
You ask us to confirm that payments under such an agreement are superannuation or pension benefits as defined in the Income Tax Act ("Act"). You are concerned that the payments may be considered to be income from self-employment. You also suggest that the payments may qualify as retiring allowances for the purposes of the Act.
We prefer not to confirm tax consequences of completed transactions. We suggest that you contact your local District Office for assistance. Nevertheless, we are offering the following general comments.
Amounts paid under unfunded pension plans are generally considered to be superannuation or pension benefits. This is particularly so where the stated intent of the plan is to cover that portion of a defined benefit that exceeds the limits imposed by the current requirements for registering pension plans.
By definition, a superannuation or pension benefit cannot be a retiring allowance.
A requirement in a supplementary pension plan for the retired employee to be available for consultation with the former employer without fee would not by itself in normal circumstances change what would otherwise be superannuation or pension benefits to income from self-employment.
Yours truly,
for Director Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch