Principal Issues: In the circumstances, is the period of cadet training completed by an RCMP cadet eligible service for purposes of subparagraph 8503(3)(a)(i) of the Regulations?
Position: Yes.
Reasons: The period of cadet training is eligible service for purposes of subparagraph 8503(3)(a)(i) of the Regulations because the cadet is employed by and receives remuneration from an employer that has contributed to the RCMP pension plan.
November 8, 2022
HEADQUARTERS HEADQUARTERS Registered Plans Directorate Income Tax Rulings Directorate Irina Schnitzer
Attention: Jeff Boxer 2022-094270
Re: Royal Canadian Mounted Police (“RCMP”) Cadet Training – Eligible Service
We are writing in response to your email dated July 5, 2022, wherein you requested our views on whether the period of cadet training completed by an RCMP cadet constitutes eligible service for purposes of subparagraph 8503(3)(a)(i) of the Income Tax Regulations (the “Regulations”).
It is our understanding that the RCMP pays a weekly allowance to the RCMP cadet during their period of training, issues T4-slips for the allowances paid and withholds income tax, Canada Pension Plan (“CPP”) contributions and Employment Insurance (“EI”) premiums from the allowance. In addition, acceptance into the RCMP cadet training program clearly indicates that it is not an offer of employment and that an offer of employment is conditional on successful completion of the training program.
Our comments
Generally, pursuant to subparagraph 8503(3)(a)(i) of the Regulations the lifetime retirement benefits that may be provided to a member under a defined benefit provision of a pension plan are restricted to benefits that are provided in respect of a period throughout which the member is employed in Canada by an employer who participates in the plan and receives remuneration from such an employer.
a. Employed in Canada
Whether a member is employed or an employee/employer relationship exists is a question of fact and in each case the true nature of the relationship has to be determined. The CRA will use guidelines established by the courts to make that determination. These guidelines are summarized in RC4110, Employee or Self-Employed. However, the CRA has previously taken the position that certain allowances paid by the RCMP to an RCMP cadet during their training period is employment income and has to be included in income under subsection 5(1) of the Income Tax Act (the “Act”). (footnote 1) In addition, in Dhillon v The Queen, 2002 DTC 2083 (“Dhillon”) the Tax Court of Canada concluded that in the circumstances presented at trial there was an employee/employer relationship between the RCMP cadet and the RCMP during the period of cadet training. The Court reached this conclusion despite the fact that there was a contractual attempt to preclude employment classification, finding that the impact of such a contractual provision was offset by unilaterally issuing T-4 slips.
As such, it is our view that a reasonable position can be taken that the RCMP cadets are employees of the RCMP during their training period. Although the contractual terms stipulate that acceptance into a training program clearly indicates that it is not an offer of employment, as noted in Dhillon, the contractual attempt to preclude employment classification does not necessarily reflect the true nature of the relationship. In other words, although the contractual term is a factor indicative of an intention that the training period is not employment, the issuance of T4-slips and withholding of CPP contributions, EI premiums and income taxes offsets this factor by indicating an understanding that the relationship is one where withholdings are required.
b. Remuneration
The term “remuneration” is not defined in the Act and the definitions of the term in the Regulations have very specific and limited application, none of which are applicable. However, the CRA has previously determined that in the context of a registered pension plan (“RPP”), the term “remuneration” includes those amounts which are included within the meaning of the term “compensation”.
The term “compensation” is defined in subsection 147.1(1) of the Act for purposes of an RPP. Pursuant to paragraph (a) of that definition, compensation of an individual from an employer includes amounts in respect of an individual’s office or employment that are required (or would be required but for paragraph 81(1)(a) of the Act as it applies with respect to the Indian Act) by section 5 or 6 of the Act to be included in computing income for the year, except for amounts excluded under subparagraphs (iii) or (iv) of the definition.
Since a reasonable position can be taken that the RCMP cadet is an employee during the training period, the allowance paid by the RCMP to the RCMP cadets is employment income which has to be include in income by the RCMP cadet under subsection 5(1) of the Act. Consequently, the allowance constitutes compensation and is considered remuneration.
It is our view that because the RCMP Cadet appears to be employed by the RCMP (a participant of the RCMP RPP) during the training period and receives remuneration from the RCMP, the requirements of subparagraph 8503(3)(a)(i) of the Regulations are met. However, it is important to note that although subparagraph 8503(3)(a)(i) of the Regulations limits the benefits that can be provided during a period, an RPP can provide benefits for a shorter period of time and exclude periods that would otherwise qualify under the Act and Regulations. In other words, it is possible that a particular RPP can restrict the number or duration of periods which qualify for benefits by giving a more restrictive meaning than is mandated by the Act and Regulations.
According to publicly available information in relation to the RCMP RPP and the purchase of prior pensionable services, or service buy-back, a person cannot buy back services of an RCMP cadet that occurred on or after April 1, 1994. (footnote 2) Thus, it appears that even though the RCMP cadet training period is eligible service for purposes of the Act and Regulations, the RCMP RPP may restrict the duration of periods which qualify for benefits, by excluding the buy-back of the training period. Unfortunately, this is not an interpretive issue related to the Act and/or Regulations and consequently we are not in a position to comment.
We trust our comments will be of assistance.
Yours truly,
Irina Schnitzer
A/Section Manager
for Division Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
FOOTNOTES
Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:
1 See XXXXXXXXXX.
2 Service buyback package - Plan information - Active members - Royal Canadian Mounted Police pension - Canada.ca