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NO: IT-167R6

DATE: SEPTEMBER 14, 1995

SUBJECT: INCOME TAX ACT
Registered Pension Plans - Employee's Contributions

REFERENCE: Subsection 147.2(4) and paragraph 8(1)(m) (also sections 5, 6, and 149, subsections 18(11), 126(1), the definitions of "defined benefit provision" and "money purchase provision," in subsection 147.1(1), and (10), 147.2(5) and the definitions of "additional voluntary contribution" and "registered pension plan" in subsection 248(1), and subparagraph 56(1)(a)(i) of the Income Tax Act; subsection 8500(4) of the Income Tax Regulations)

Application

This bulletin cancels and replaces Interpretation Bulletin IT-167R5 dated March 14, 1985, and the Special Release dated February 19, 1990.

Generally, the bulletin is effective for 1991 and subsequent taxation years; however, it also applies to undeducted pre-1990 current service and pre-1990 past service contributions made by an employee to a registered pension plan (RPP). For more information regarding the deductibility of employee RPP contributions for the transitional years of 1986 to 1990, refer to the applicable law and the income tax guide called RRSPs and Other Registered Plans for Retirement (formerly called the Pension and RRSP Tax Guide) for those years. The guide is available at all Revenue Canada tax services offices.

Summary

In general, this bulletin deals with the deductibility of:

a) contributions made by an employee to an RPP in respect of current service and past service, as specified below;

b) interest on borrowings to make employee contributions to an RPP; and

c) employee current service and past service contributions in special circumstances.

With respect to (a) above, in calculating income for a taxation year after 1990, as discussed in this bulletin, employee contributions to an RPP are in respect of:

  • current services rendered after 1989;
  • past services rendered after 1989;
  • past services rendered before 1990 while a contributor, (along with undeducted contributions for current services rendered before 1990); and
  • past services rendered before 1990 while not a contributor.

There are many new terms relating to registered plans, some of which have been briefly described in the Glossary in paragraph 17 of this bulletin. Transfers between plans are not discussed. For information regarding transfers, please refer to the above-mentioned income tax guide.

The subject matter of this bulletin is arranged under the following headings:

  • General comments
  • Employee contributions for current service and post-1989 past service - paragraph 147.2(4)(a)
  • Employee contributions for pre-l990 past service while not a contributor - paragraph 147.2 (4)(b)
  • Employee contributions for pre-l990 service while a contributor - paragraph 147.2 (4)(c)
  • "Past service" - year of death of an employee
  • Teachers - subsection 147.2(5)
  • Non-deductible contributions - subparagraph 56(1)(a)(i)
  • Deduction by ex-employee - subsection 147.2(4)
  • Interest on money borrowed to make current service contributions - subsection 18(11) and paragraph 147.2(4)(a)
  • Interest on money borrowed to make past service contributions - subsection 18(11) and paragraphs 147.2(4)(a), (b), and (c)
  • Deductibility of Accrued and Instalment Interest
  • Glossary
    a) Additional voluntary contribution
    b) Defined benefit provision
    c) Employee
    d) Money purchase provision
    e) Registered pension plan
    f) Year
  • Appendix - Examples

Discussion and Interpretation

General comments

1. In computing income for a taxation year after 1990 from an office or employment, an employee is entitled under paragraph 8(1)(m) to deduct contributions made in the year to an RPP that are deductible by reason of subsection 147.2(4).

2. There are separate limits under subsection 147.2(4) for the deductibility of an employee's pension contributions for a taxation year ending after 1990 in respect of:

  • current service for years of service after 1989 and past service for years of service after 1989 (see 3 below),
  • past service for years of service before 1990 during which an employee was not a contributor to an RPP, (see 4 to 6), and
  • past service for years of service before 1990 during which an employee was a contributor to an RPP along with pre-1990 current service in respect of contributions which have not been deducted in a previous year (see 7 and 8 below).

Employee contributions for current service and post-1989 past service - paragraph 147.2(4)(a)

3. Employee contributions made in a taxation year after 1990 under a defined benefit provision of an RPP or a money purchase provision of an RPP are deductible in computing income in that year under paragraph 147.2(4)(a) if they are made in accordance with the terms of the plan as registered. This applies whether the contribution is for current service after 1989 or for past service after 1989 and whether it is a required or optional contribution. The condition that contributions be made in accordance with the terms of the plan as registered effectively limits the amount of contributions that can be deducted in a year.

Employee contributions for pre-l990 past service while not a contributor - paragraph 147.2(4)(b)

4. An employee's deduction under paragraph 147.2(4)(b) for past service contributions while not a contributor to any RPP in a "year" (see the definition of "year" in (f) of the Glossary) is limited to the least of:

a) the amount of the contributions, (other than AVCs and prescribed contributions), made by the employee in the year or a previous year after 1945 and in respect of a year before 1990 in which the employee was not a contributor, for eligible service under an RPP, minus deductions previously claimed for those contributions,

b) $3,500, and

c) (i) $3,500 for each year of eligible service before 1990 in which the employee was not a contributor under an RPP and to which the employee has made past service contributions deductible under paragraph 147.2(4)(b),

minus:

(ii) deductions previously claimed for those contributions, and

(iii) deductions claimed under former subparagraph 8(1)(m)(ii) as it read for the 1990 taxation year for AVCs.

At the time this bulletin was printed, there was no "prescribed contribution" under the Regulations in relation to subsection 147.2(4)(b).

The above deduction is in addition to any deduction for contributions under paragraph 147.2(4)(a) described in 3 above. If an employee has been contributing to more than one RPP for pre-1990 past service while not a contributor, the maximum deduction for the year for all such contributions is $3,500. Note that past service AVCs in respect of pre-1990 service cannot be deducted.

Note: In draft legislation released by the Minister of Finance on April 26, 1995, it is proposed that subparagraph 147.2(4)(b)(iii) be amended to clarify that only past service AVCs deducted for taxation years before 1987 under former subparagraph 8(1)(m)(ii), as it read in the year in which the deductions were claimed, should be subtracted in the above-mentioned formula under (c)(iii). Subparagraph 8(1)(m)(ii) did not allow past service AVCs to be deducted after 1986. This amendment, if enacted as proposed, will apply to 1991 and later taxation years.

5. Subclauses 147.2(4)(b)(i)(A)(I) and (II) provide that a contribution for past services before 1990 while not a contributor will qualify as such only if:

a) the employee was not a contributor to any RPP during the year for which the past service contribution is made; or

b) such past service contributions were made before March 28, 1988, or made on or after that date under a written agreement entered into before that date.

If (b) applies, the limits in paragraph 147.2(4)(b) apply to past service contributions to the particular plan under which or with respect to which the agreement was made.

6. If an employee's contributions in a taxation year to an RPP for pre-1990 past services while not a contributor exceeds the maximum deduction of $3,500, the excess may be carried forward and claimed in a subsequent year, subject to the ceiling described in 4 above.

For an example of the allowable deduction for past service contributions while not a contributor, see Example A in the Appendix.

Employee contributions for pre-1990 service while a contributor - paragraph 147.2(4)(c)

7. A deduction for a contribution for past service before 1990 while the employee was a contributor to an RPP is available under paragraph 147.2(4)(c). This includes amounts for pre-1990 current service contributions that were made to an RPP by the employee and were not deducted for a preceding taxation year. The maximum deduction that an employee may claim for a year under paragraph 147.2(4)(c) is equal to the lesser of:

a) the amount of the contributions (other than AVCs, prescribed contributions and contributions for pre-1990 past service while not a contributor) made by the employee in the year or a preceding year (after 1962) for eligible service under an RPP in respect of a year before 1990, minus deductions previously claimed for those contributions; and

b) $3,500 minus the total of amounts deducted for the year for current service and post-1989 past service contributions and pre-1990 past service contributions while not a contributor.

At the time this bulletin was printed, there was no "prescribed contribution" under the Regulations in relation to subsection 147.2(4)(c).

8. If an employee has made contributions (as described in 7 above) in the year or a preceding year for pre-1990 eligible service to more than one RPP, the maximum deduction that may be claimed in the year under paragraph 147.2(4)(c) is:

  • $3,500

minus:

  • the total amount deducted in the year for contributions to all plans for:

- current service;

- post-1989 past service; and

- pre-1990 past service while not a contributor.

Any excess resulting from this limitation may be carried forward and deducted in a subsequent year, but subject to the same limitation described above. It follows that any excess carried forward must be deferred until a year when the combined deduction is less than $3,500 for:

  • current service;
  • post-1989 past service; and
  • pre-1990 past service while the employee was not a contributor.

At that time, a deduction may be claimed not exceeding:

  • $3,500;

minus:

  • the amount, if any, of the two other RPP deductions under paragraphs 147.2(4)(a) and (b) for the year.

For an example of the allowable deduction for past service contributions while a contributor, see Example B in the Appendix.

"Past service" . year of death of an employee

9. Where an employee dies and has a balance of past service contributions remaining to be carried forward from prior years, a deduction under paragraphs 147.2(4)(b) or 147.2(4)(c) may be claimed on the deceased's final income tax return for the year of death. A deduction may also be claimed on the deceased's final return for the year of death under paragraph 147.2(4)(c) in respect of undeducted pre-1990 current service contributions made by the employee. However, any remaining contributions, which could not be deducted on the deceased's final return for the year of death, would remain undeductible.

Note: In draft legislation released by the Minister of Finance on April 26, 1995, it is proposed that new subsection 147.2(6) will provide a special rule for deductible RPP contributions when an individual dies. If a taxpayer dies in a taxation year, in computing the deceased's income for the year of death or the immediately preceding year, the deceased's legal representative may be entitled to deduct the deceased individual's previously undeducted RPP contributions, without regard to the $3,500 annual limits specified in subparagraphs 147.2(4)(b)(ii) and (c)(ii). The addition of subsection 147.2(6), if enacted as proposed, will apply to individuals who die after 1992.

Teachers - subsection 147.2(5)

10. For the 1991 to 1994 taxation years, a teacher who is employed by Her Majesty or by an organization exempt from tax for the year under section 149, such as a school board, is entitled under subsection 147.2(5) to deduct contributions for past services, in accordance with the rule specified in 4 above, even though the past services relate to a year while the teacher was a contributor to a pension plan. This enables a teacher to take advantage of the additional annual deduction of $3,500 provided by paragraph 147.2(4)(b). Normally in such circumstances, the rule in 7 above would be applicable. This provision is beneficial to a teacher who previously gave up employment with Her Majesty or a tax-exempt organization and withdrew all contributions to the pension plan at that time and has since resumed such employment and wishes to be reinstated under the plan by returning the contributions. Subsection 147.2(5) ceases to apply after 1994.

Non-deductible contributions - subparagraph 56(1)(a)(i)

11. Generally, any amount received out of or under an RPP must be included in income even though an amount contributed to the plan may not have been deductible because it was in excess of the allowable deductions described above.

Deduction by ex-employee - subsection 147.2(4)

12. Where an employee (see the definition of "employee" in (c) of the Glossary) is entitled to carry forward a contribution for deduction in a subsequent year, the entitlement to such a deduction is not affected by the fact that, in the year when the deduction is claimed, the employee is no longer in the same employment or is not employed at all.

Interest on money borrowed to make current service contributions - subsection 18(11) and paragraph 147.2(4)(a)

13. Subsection 18(11) prohibits a deduction for interest and other financing costs in respect of borrowed money used by an employee to make a current service contribution to an RPP after November 12, 1981.

Interest on money borrowed to make past service contributions - subsection 18(11) and paragraphs 147.2(4)(a), (b), and (c)

14. Generally, a deduction for interest and other financing costs in respect of borrowed money used by an employee to make past service contributions to an RPP after November 12, 1981, is prohibited by subsection 18(11), with one exception. A deduction is available to an employee for such costs in respect of borrowed money used to make past service contributions (described in subparagraphs 8(1)(m)(ii) and (iii) as they apply to the 1990 taxation year) if the contributions are required to be made under an obligation entered into before November 13, 1981.

Deductibility of Accrued and Instalment Interest

15. If a past service contribution to a defined benefit plan is paid in instalments, each instalment payment will normally consist of the basic contribution for the past services, accrued interest (interest that would have been payable had the past service contribution been made in a lump sum) and an instalment interest charge. As a result of the Tax Court of Canada case, Arthur E. Walton v. The Minister of National Revenue, 89 DTC 423, 1989 CTC 2335, the following applies:

a) For the 1989 and subsequent taxation years and with respect to both accrued interest and instalment interest charges paid in the year, such amounts are considered to be part of the pension contribution. Such contributions are deductible subject to the limitations in subsection 147.2(4).

b) For 1991 and subsequent taxation years, any remaining non-deductible instalment interest charges for years prior to 1989 may be carried forward and deducted under paragraphs 147.2(4)(b) or (c), as the case may be, subject to the limitations stated therein.

16. If an election to buy back past service by way of instalments under a defined benefit provision was made before November 13, 1981, for 1987 and subsequent taxation years, the comments in 15 do not apply and the following applies for 1987 and subsequent taxation years:



a) With respect to instalment interest, the employee has the choice of deducting the amount as either:

(i) interest which is deductible in the year paid; or

(ii) an amount contributed to an RPP for past services either while the employee was not a contributor or while the employee was a contributor (which is deductible in the year or in a subsequent year in accordance with either paragraph 147.2(4)(b) or (c), respectively.)

b) With respect to accrued interest, the amount is deductible as described in (ii) above. The income tax guide called RRSPs and Other Registered Plans for Retirement has additional comments on this subject.

Glossary

17. The terms used throughout this bulletin are defined as follows:

a) Additional voluntary contribution - An "additional voluntary contribution" to an RPP means a contribution made by a member to the plan, that is used to provide benefits under a money purchase provision (see (d) below) of the plan and that is not required as a general condition of membership in the plan. (subsection 248(1))

b) Defined benefit provision - Defined benefit provision means the terms of the pension plan under which the benefits for each member are determined in any way other than that described in the explanation of "money purchase provision" in (d) below. Under the terms of a defined benefit provision of an RPP, a certain level of retirement benefits, determined by a formula, is promised. The employee's contributions, if any, are predetermined; however, the employer would generally contribute whatever is required to ensure the provision of the promised retirement benefits. (subsection 147.1(1))

c) Employee - As provided in subsection 8500(4) of the Regulations, any reference in this bulletin to "employee" may be read as including an "officer" inasmuch as a pension plan accepted for registration may include or be restricted to officers as is, for example, the pension plan established for Members of Parliament.

d) Money purchase provision - Employer and employee contributions and investment earnings thereon in each member's separate account determine the pension benefits that can be purchased for the employee at retirement. There is no promise that a certain level of retirement benefits will be provided and no uncertainty regarding the employer's financial obligation to the plan. (subsection 147.1(1))

e) Registered pension plan - This is defined in subsection 248(1) as a pension plan that has been registered by the Minister for the purposes of the Income Tax Act, provided the registration has not been revoked. An RPP may be a plan that includes defined benefit provisions, money purchase provisions or a plan that includes a combination of both types of provisions.

f) Year - For the purposes of paragraph 147.2(4)(b), a "year" means a calendar year as distinct from the fiscal period of the employer, which may not coincide with the calendar year. Each calendar year in which the employee rendered service, even for as little as one day, is to be counted as one year. If, at any time in a past year, an employee made an allowable contribution to any RPP, subject to the exception in paragraph 10 of this bulletin, that year does not count as a non-contributory year.

If you have any comments regarding the matters discussed in this bulletin, please send them to:

Director, Technical Publications Division Policy and Legislation Branch
Revenue Canada
875 Heron Road
Ottawa ON K1A 0L8

Appendix - Examples

Example A - Past Service While Not a Contributor (Paragraph 147.2(4)(b))

In 1991, a member made a $12,000 contribution in respect of past service for service the member performed for 3 years before 1990 throughout which the member was not a contributor to any RPP. The member may deduct the following under paragraph 147.2(4)(b) for each of the years indicated:

1991: $3,500, which is the least of:

  • $12,000 - $0 = $12,000 (the amount of the member's contributions, minus deductions previously claimed for those contributions),
  • $3,500, the annual limit, and
  • $10,500 ($3,500 X 3 years) - $0 = $10,500 ($3,500 for each year of eligible service before 1990 in which the employee was not a contributor under an RPP and to which the employee has made past service contributions deductible under paragraph 147.2(4)(b), minus deductions previously claimed for those contributions and minus deductions claimed under former subparagraph 8(1)(m)(ii) as it read for the 1990 taxation year for AVCs.)

1992: $3,500, which is the least of:

  • $12,000 - $3,500 deducted for 1991 = $8,500,
  • $3,500, and
  • $10,500 ($3,500 X 3) - $3,500 deducted for 1991 = $7,000.

1993: $3,500, which is the least of:

  • $12,000 - $7,000 ($3,500 deducted for each of 1991 and 1992) = $5,000,
  • $3,500, and
  • $10,500 ($3,500 X 3) - $7,000 ($3,500 deducted for each of 1991 and 1992) = $3,500.

1994: $0, which is the least of:

  • $12,000 - $10,500 ($3,500 deducted for each of 1991, 1992, and 1993) = $1,500,
  • $3,500, and
  • $10,500 ($3,500 X 3) - $10,500 ($3,500 deducted for each of 1991, 1992, and 1993) = $0.

Of the contribution of $12,000, the member can only deduct a maximum total of $10,500 ($3,500 X 3 years = $10,500). The remaining $1,500 cannot be deducted.

Example B - Past Service While a Contributor (Paragraph 147.2(4)(c))

A member pays $2,000 a year in respect of current service. In 1992, the member paid $5,200 in respect of past service before 1990 for service the member performed for 2 years throughout which the member was not a contributor to any RPP. In 1992, the member also paid $4,800 in respect of past service before 1990 for service the member performed for 3 years while the member was a contributor to an RPP. No AVCs have been made. The member may deduct the following for each of the years indicated:

1992: The member can deduct $5,500, consisting of current service of $2,000 and past service contributions while not a contributor of $3,500:

  • current service: $2,000
  • past service while not a contributor: $3,500, which is the least of:

- $5,200 - $0 = $5,200 (the amount of the member's contributions, minus deductions previously claimed for those contributions),

- $3,500, the annual limit, and

- ($3,500 X 2 years) - $0 = $7,000 ($3,500 for each year of eligible service before 1990 in which the employee was not a contributor under an RPP and to which the employee has made past service contributions deductible under paragraph 147.2(4)(b), minus deductions previously claimed for those contributions.)

  • past service while a contributor: $0, which is the least of:

- $4,800 - $0 = $4,800 (the amount of the contributions (other than AVCs, prescribed contributions and contributions for pre-1990 past service while not a contributor) made by the employee in the year or a preceding year (after 1962) for eligible service under an RPP in respect of a year before 1990, minus deductions previously claimed for those contributions); and

- $3,500 - $2,000 - $0 - $3,500 = $0 ($3,500 minus the total of amounts deducted for current service and post-1989 past service contributions and pre-1990 past service contributions while not a contributor).

1993: The member can deduct $3,700, consisting of current service of $2,000 and past service contributions while not a contributor of $1,700:

  • current service: $2,000
  • past service while not a contributor: $1,700, which is the least of:

- $5,200 - $3,500 = $1,700 (the amount of the member's contributions, minus the deduction claimed of $3,500 for 1992),

- $3,500, the annual limit, and

- ($3,500 X 2 years) - $3,500 = $3,500 ($3,500 for each year of eligible service before 1990 in which the employee was not a contributor under an RPP and to which the employee has made past service contributions deductible under paragraph 147.2(4)(b), minus the deduction of $3,500 claimed for 1992.)

  • past service while a contributor: $0, which is the least of:

- $4,800 - $0 = $4,800 (the amount of the contributions (other than AVCs, prescribed contributions and contributions for pre-1990 past service while not a contributor) made by the employee in the year or a preceding year (after 1962) for eligible service under an RPP in respect of a year before 1990, minus deductions previously claimed for those contributions); and

- $3,500 - $2,000 - $0 - $1,700 = $0 ($3,500 minus the total of amounts deducted for current service and post-1989 past service contributions and pre-1990 past service contributions while not a contributor).

1994: The member can deduct $3,500, consisting of current service of $2,000 and past service contributions while a contributor of $1,500:

  • current service: $2,000
  • past service while not a contributor: $0, which is the least of:

- $5,200 - $5,200 = $0 (the amount of the member's contributions, minus the deduction claimed of $3,500 for 1992 and $1,700 for 1993),

- $3,500, the annual limit, and

- ($3,500 X 2 years) - $5,200 = $1,800 ($3,500 for each year of eligible service before 1990 in which the employee was not a contributor under an RPP and to which the employee has made past service contributions deductible under paragraph 147.2(4)(b), minus the deduction of $3,500 claimed for 1992 and $1,700 for 1993.)

  • past service while a contributor: $1,500, which is the least of:

- $4,800 - $0 = $4,800 (the amount of the contributions (other than AVCs, prescribed contributions and contributions for pre-1990 past service while not a contributor) made by the employee in the year or a preceding year (after 1962) for eligible service under an RPP in respect of a year before 1990, minus deductions previously claimed for those contributions); and

- $3,500 - $2,000 - $0 - $0 = $1,500 ($3,500 minus the total of amounts deducted for current service and post-1989 past service contributions and pre-1990 past service contributions while not a contributor).

1995: The member can deduct $3,500, consisting of current service of $2,000 and past service contributions while a contributor of $1,500:

  • current service: $2,000
  • past service while not a contributor: $0. The past service contributions while not a contributor of $5,200 have been completely deducted in 1992 and 1993.
  • past service while a contributor: $1,500, which is the least of:

- $4,800 - $1,500 = $3,300 (the amount of the contributions made by the employee in the year or a preceding year (after 1962) for eligible service under an RPP in respect of a year before 1990, minus the deduction of $1,500 claimed for 1994); and

- $3,500 - $2,000 - $0 - $0 = $1,500 ($3,500 minus the total of amounts deducted for current service and post-1989 past service contributions and pre-1990 past service contributions while not a contributor).

1996: The member can deduct $3,500, consisting of current service of $2,000 and past service contributions while a contributor of $1,500:

  • current service: $2,000
  • past service while not a contributor: $0. The past service contributions while not a contributor of $5,200 have been completely deducted in 1992 and 1993.
  • past service while a contributor: $1,500, which is the least of:

- $4,800 - $3,000 = $1,800 (the amount of the contributions made by the employee in the year or a preceding year (after 1962) for eligible service under an RPP in respect of a year before 1990, minus the deductions of $1,500 claimed for each of 1994 and 1995); and

- $3,500 - $2,000 - $0 - $0 = $1,500 ($3,500 minus the total of amounts deducted for current service and post-1989 past service contributions and pre-1990 past service contributions while not a contributor).

1997: The member can deduct $2,300, consisting of current service of $2,000 and past service contributions while a contributor of $300:

  • current service: $2,000
  • past service while not a contributor: $0. The past service contributions while not a contributor of $5,200 have been completely deducted in 1992 and 1993.
  • past service while a contributor: $300, which is the least of:

- $4,800 - $4,500 = $300 (the amount of the contributions made by the employee in the year or a preceding year (after 1962) for eligible service under an RPP in respect of a year before 1990, minus the deductions of $1,500 claimed for each of 1994, 1995, and 1996); and

- $3,500 - $2,000 - $0 - $0 = $1,500 ($3,500 minus the total of amounts deducted for current service and post-1989 past service contributions and pre-1990 past service contributions while not a contributor).

The past service contributions while a contributor of $4,800 have been completely deducted in 1994, 1995, 1996 and 1997.

Explanation of Changes for Interpretation Bulletin IT-167R6 Registered Pension Plans - Employee's Contributions

Introduction

The purpose of the Explanation of Changes is to give the reasons for the revisions to an interpretation bulletin. It outlines revisions that we have made as a result of changes to the law, as well as changes reflecting new or revised departmental interpretations.

Overview

Interpretation bulletin IT-167R6 deals with the deductibility after 1990 of contributions made by an employee to a registered pension plan (RPP). The revisions to IT-167R5 and the Special Release dated February 19, 1990, were undertaken to reflect amendments to the Income Tax Act by S.C. 1990, c. 35 (former Bill C-52, which contained the Pension Reform amendments). This revision also reflects a number of Pension Reform amendments to the Income Tax Regulations passed on December 23, 1991, by P.C. 1991-2540, SOR/92-51.

The contents of this bulletin are affected by some of the proposed amendments contained in the April 26, 1995 draft legislation. These proposed amendments are reflected in notes following numbers 4 and 9.

The contents of this bulletin are not affected by any other draft legislation released before August 14, 1995.

Legislative and Other Changes

Number 1 (replaces former number 1) provides general comments on the deductibility of employee contributions to an RPP and reflects the amendment to paragraph 8(1)(m) and the introduction of subsection 147.2(4).

Number 2 (replaces former number 2) briefly mentions the limits under subsection 147.2(4) for the deductibility of contributions for taxation years after 1990.

Number 3 (replaces former number 3) explains the addition of paragraph 147.2(4)(a) concerning employee contributions for current service and post-1989 past service.

Number 4 (replaces former numbers 5, 7, 8, and 9) deals with the limits on an employee's deduction under paragraph 147.2(4)(b) for past service contributions while not a contributor to an RPP in a year. The note to number 4 reflects the proposed amendment to paragraph 147.2(4)(b) in the April 26, 1995 draft legislation, which provides for a revised computation of the deduction for RPP past service contributions while not a contributor.

New number 5 outlines the conditions under which a contribution for past services before 1990 while not a contributor qualifies for a deduction under paragraph 147.2(4)(b).

Number 6 (replaces former number 6) explains the provision providing for the carryforward and deduction of contributions in a previous taxation year to an RPP for pre-1990 past services while not a contributor that exceed the maximum deduction of $3,500 allowable under paragraph 147.2(4)(b).

Numbers 7 and 8 (replace former number 10) reflect the addition of paragraph 147.2(4)(c). Specifically, the calculation of the maximum deduction allowable under that paragraph for a contribution for past service before 1990, while the employee was a contributor to an RPP, is outlined.

New number 9 deals with the carryforward rules which apply to the balance of undeducted pre-1990 past service and pre-1990 current service contributions remaining to be carried forward from prior years which may be claimed on the deceased's final income tax return for the year of death. The note to number 9 reflects the proposed addition of subsection 147.2(6) in the April 26, 1995 draft legislation. Proposed subsection 147.2(6) will provide for a deduction from the deceased's income for the year of death or the immediately preceding year, in respect of the deceased's previously undeducted RPP contributions, without regard to the $3,500 annual limits specified in subparagraphs 147.2(4)(b)(ii) and (c)(ii).

Number 10 (replaces former number 18) reflects the repeal of subsection 8(7) and the introduction of subsection 147.2(5). Number 10 deals with the special rule, applicable for the 1991 to 1994 years, relating to the deductibility of past service contributions made by certain teachers to enable them to deduct contributions for past services in accordance with the rule in number 8 even though the past services relate to a year in which the teacher was a contributor to a pension plan.

Numbers 15 and 16 replace former number 16 of the Special Release to IT-167R5 dated February 19, 1990. Number 15 relates to the Tax Court of Canada case, Arthur E. Walton v. The Minister of National Revenue, 89 DTC 423, (1989) CTC 2335. This pertains to the deductibility of the instalment interest portion of the total instalment payment for past service contributions made under an agreement entered into after November 12, 1981, for the 1989 and subsequent taxation years. Number 16 relates to the deductibility of accrued interest and instalment interest pertaining to past service contributions made under an agreement entered into before November 13, 1981.

New number 17 contains a Glossary to provide an explanation of certain terms used throughout the bulletin. Note that the definition of the term "year" replaces former number 8, and the definition of the term "employee" replaces former number 23.

Former number 13 was deleted because of the amendment which repealed the deduction under paragraph 60(j) for the transfer of special payments such as superannuation or pension benefits to a registered pension fund or plan. The coverage of the deduction for transfers of eligible retiring allowances to an RPP under paragraph 60(j.1) has been deleted as the subject matter will be covered in a separate bulletin.

Former number 19, which dealt with the U.S. Social Security Tax, is not covered here since it is contained in Interpretation Bulletin IT-122R2, United States Social Security Taxes and Benefits, dated March 13, 1989.

Former number 20 which related to the Railroad Retirement Tax Act of the United States, was deleted since this information can be found in IT-122R2.

Former number 21 which concerned premiums paid for pensions under the National Insurance Scheme of Great Britain is not covered in this bulletin as this bulletin deals primarily with employee RPP contributions.

Former number 22, which dealt with the transfer of funds under subsection 146(16) from a registered retirement savings plan and a registered pension fund or plan, has been deleted. Coverage of this subject will be contained in a separate bulletin.

In the Appendix, Example A shows the calculation of the deduction for employee contributions for pre-1990 past service while not a contributor. Example B illustrates the calculation of the deduction for employee contributions for pre-1990 past service while a contributor.

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