2014-0535341I7 Retiring Allowance transfer to RCA

Principal Issues: Whether a deduction is allowed for the transfer of a retiring allowance to a retirement compensation arrangement?

Position: No.

Reasons: No provision in the Act allows for a deduction on such a transfer.

Author: Tsang, Peky
Section: 56(1)(a)(ii); 60(j.1)

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                                                                                                                                                          2014-053534
                                                                                                                                                           P. Tsang         

November 12, 2014

Dear XXXXXXXXXX:

Re: Retiring Allowance Transfer to Retirement Compensation Arrangement

This letter is in reply to your correspondence of June 4, 2014 regarding the transfer of a retiring allowance to a retirement compensation arrangement (“RCA”).

In particular, members of a registered pension plan (“RPP”) may direct their employer to transfer their retiring allowance to the RPP for the purposes of purchasing past service benefits. In general, a deduction for the eligible amount transferred may be claimed by the member under paragraph 60(j.1) of the Income Tax Act (the “Act”). In some situations, the eligible amount is greater than the amount of past service benefits permitted to be purchased. Consequently, the difference may be transferred to an RCA to provide benefits in excess of the benefits from the RPP. You asked whether the member may claim a deduction for the amount transferred to the RCA. 

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced).  It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination.  The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in information circular (IC)70-6R6, Advance Income Tax Rulings and Technical Interpretations.

Subparagraph 56(1)(a)(ii) of the Act requires a taxpayer to include in computing income for a taxation year the amount of a retiring allowance received by the taxpayer in the year. Subject to certain conditions, the taxpayer may claim a deduction under paragraph 60(j.1) for the eligible amount of a retiring allowance transferred to the taxpayer’s RPP or registered retirement savings plan. There is no provision in the Act that allows for a deduction for a retiring allowance transferred to an RCA.

We trust that our comments will be of assistance to you.

Yours truly,

Lita Krantz, CPA, CA
for Director
Deferred Income Plans Section II
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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