Frequently Asked Questions - RPPs
- Why is the CRA (Registered Plans Directorate) changing how it monitors registered pension plans?
- Have there been any discussions with clients on these changes?
- How will these changes affect me? What are the benefits for me?
- How will risk be determined and applied?
- Is this change going to cost me money?
- Are these changes being introduced in order to collect more taxes?
- Will these changes mean that there will be no review of my plan terms at registration?
- If my application for registration is selected for review, can "deemed" registration under current subsection 147.1(3) of the Income Tax Act (the "Act") still occur?
- How do I know if the terms of my plan will be acceptable to the CRA? Can I obtain a complete plan text review upon request?
- What information is currently available to me about plan terms and conditions? Where is it available?
- Will there be more communications?
- How will this affect the existing relationships I have with Directorate personnel? Will I continue to have a specific working group available to deal with my plans?
- The Registered Plans Directorate refers to both "audit" and "review" when it describes the changes in its processes. What is the difference between the two?
- What plans will be selected for audit?
- Will the fact that I'm being audited remain confidential?
- What will you be reviewing in your audits and what kind of information will you request in conjunction with an audit?
- What is the difference between a specific audit of the plan's administration and the general audit that the CRA is currently performing on certain plans (i.e., field audit)? Will the CRA continue to do field audits?
- Am I guaranteed to be audited?
- Will the CRA be providing any outreach for its clients on these changes?
- Is the CRA contemplating any new penalties and, if so, of what sort?
- If my plan does not comply with legislation, what will the consequences be?
- To whom can I address my concerns or comments about the changes?
1. Why is the CRA (Registered Plans Directorate) changing how it monitors registered pension plans?
When the pension reform legislation and associated regulations were introduced in 1989, the Registered Plans Directorate concentrated on helping plan sponsors, administrators and consultants with the new registration requirements for plan wording. We feel that our clients now have the information and skills to correctly draft plan terms to obtain registration under this legislation. As a result, we are adjusting our focus and are expanding our audit program to ensure that pension plans are being operated in accordance with their terms and the legislation.
In 2004, we consulted with pension plan focus groups from across the country to gather their opinions on the proposed changes. The results from those sessions can be found on our Web site, at www.cra-arc.gc.ca/tax/registered/consultations/rpp_info04-e.html.
On March 9, 2005, the Registered Plans Directorate held the inaugural meeting of the Pension Advisory Committee (PAC) in Ottawa. This committee is made up of pension consultants, actuaries and plan administrators. There are a number of subcommittees within the PAC concerned with making proposals for changes to communications, technical issues and procedural policies. We will continue to meet with PAC members to seek their input and ideas on how to serve you better.
The Directorate has held, and will continue to hold, annual pension client consultation sessions where technical and procedural issues are addressed. We also participate in regular meetings with the Canadian Association of Pension Supervisory Authorities (CAPSA) and the Canadian Institute of Actuaries (CIA).
Plans for other outreach activities are continuing and further information will be available through Web site notices.
Depending on the risk level of a plan (see Question 4), sponsors and administrators can expect quicker service. For example,
- Shorter response time for registration requests: Lower risk plans (such as money purchase plans, defined benefit plans with more than 10 employees, and plans based on an approved specimen plan) will be processed faster than plans considered to be at higher risk, such as pension plans for individuals, designated plans or plans with persons connected to the employer;
- Immediate acceptance of low risk amendments: There will be fewer requests by the Registered Plans Directorate to clarify specific wording or interpretations of wording in the plan text. The onus will be on the sponsor and the administrator to ensure that the plan terms are in accordance with the Income Tax Act and Regulations; and
- Faster approval of Actuarial Valuation Report (AVR) funding recommendations: Review of AVRs will not be held up pending approval to amendments.
Consultants should also find that there will be less questioning by the Directorate about the interpretation of the plan text. The verification that the plans terms are in compliance with the Income Tax Act and Regulations will be part of the audit of the plan's administration.
The Registered Plans Directorate has developed risk indicators for pension plans based on past experience to help identify those plans that have a higher risk of contravening the legislation. For plans identified with a higher risk level, the likelihood of being reviewed prior to registration or audited after registration will be increased.
The Directorate will develop its audit plan based on the number of high-risk plans, the issues for these plans that may be problematic and the number of resources it has available for conducting the audits. The issues that cause plans to be at higher risk will also be addressed in other manners besides audits. For example, communications tools will be developed to make administrators aware of the issues causing problems and ways in which they can address those issues.
The Directorate will continue to review and modify these indicators based on audit results, industry trends and other factors.
5. Is this change going to cost me money?
It depends. The majority of pension plans registered with the Agency are being administered in accordance with the Income Tax Act and Regulations and amendments to those plans will not be required. Those administrators found to be interpreting terms or operating the plan in a manner contrary to the Income Tax Act and Regulations may be required to amend the plan or change their administration and thus may incur some costs.
Additional costs may be incurred by plans that are being audited in order to provide information necessary to conduct the audit. These costs may be reduced if administrators maintain complete and accessible records of the administration for the plan. For more details as to the types of information that may be requested as part of an audit, please see Question 16, below.
6. Are these changes being introduced in order to collect more taxes?
No. These changes are being introduced to ensure that everyone pays their fair share of taxes while being confident that the tax rules are being applied fairly to all. The registration of a pension plan allows for the deferral of taxes on amounts contributed to the plan and on earnings of the plan fund. The Income Tax Act and Regulations limit the amount of funds that may be tax deferred by each taxpayer. These changes are designed to allow the CRA to better monitor the operation of registered pension plans and to collect the taxes owing if the limits are not respected.
7. Will these changes mean that there will be no review of my plan terms at registration?
Plan documents submitted for registration will be initially reviewed to ensure that the application is complete. Following this assessment, some plans will have specific sections of the plan terms reviewed to ensure that the wording is acceptable. Other plans will not have their terms reviewed at registration; however, their plan terms may be reviewed later as part of an audit of the plan administration.
8. If my application for registration is selected for review, can "deemed" registration under current subsection 147.1(3) of the Income Tax Act (the "Act") still occur?
Yes. The law has not changed and subsection 147.1(3) will continue to deem registration in the circumstances described in that provision.
Plans submitted for registration in the manner prescribed by subsection 8512(1) of the Income Tax Regulations (the "Regulations"), and that are not selected for review, will receive a letter confirming registration of the plan in accordance with paragraph 147.1(2)(c) of the Act.
Plans submitted for registration in the manner prescribed by subsection 8512(1) of the Regulations,and that are selected for review, will receive a letter confirming that an application had been made in a prescribed manner and that the plan has been deemed registered under subsection 147.1(3) of the Act.
With fewer plans subject to review before registration, however, there will be fewer deemed registrations under the new process. For more information about deemed registration, please refer to the Registered Pension Plan Guide at www.cra-arc.gc.ca/E/pub/tg/t4099/t4099-05e.pdf.
9. How do I know if the terms of my plan will be acceptable to the CRA? Can I obtain a complete plan text review upon request?
The majority of the wording of plan texts is similar and not contentious. If you have concerns, we will review excerpts, although we will ask for a complete plan document for contextual comparison and reference.
If you have a number of plans with similar wording, you may want to consider setting up a specimen plan document. In this case, we will review the entire document and plans may be registered in conjunction with the specimen with specified variables. Please see Newsletter 95-6R, Specimen Pension Plans – Speeding up the Process (www.cra-arc.gc.ca/tax/registered/newsletters/95-6r-e.html) for more information.
10. What information is currently available to me about plan terms and conditions? Where is it available?
The CRA has published a number of documents on its Web site (www.cra-arc.gc.ca/rpd) to assist you in determining whether plan terms are acceptable. If, after reviewing these documents, you are still uncertain, you may contact an officer from the Registered Plans Directorate at our general enquiries number 1-800-267-3100. If the issue is more complex, you may want to submit it to the Directorate in writing for an opinion at: Registered Plans Directorate, Ottawa, ON K1A 0L5.
11. Will there be more communications?
As a result of feedback from clients, we have redesigned our Web site. Information is now easier to find and the site is easier to navigate. We have also introduced an electronic mailing list (www.cra-arc.gc.ca/eservices/maillist/subscriberegistered-e.html) where interested parties can subscribe and be notified when new items are posted to the Web site.
In consultation with the Pension Advisory Committee (for more information on this committee, please see Question 2), we are also investigating ways to improve our publications (for example, new and updated newsletters, forms and bulletins) and respond better to our clients' needs.
12. How will this affect the existing relationships I have with Directorate personnel? Will I continue to have a specific working group available to deal with my plans?
We are examining how our Directorate will be structured with input from the Pension Advisory Committee (for more information on this committee, please see Question 2). Since our processes will be changing, we will be determining the best way to assign the work.
There will be a shift of resources and many personnel will have different responsibilities. We will continue to be accessible, but new staff members may be assigned to deal with your plan or query.
13. The Registered Plans Directorate refers to both "audit" and "review" when it describes the changes in its processes. What is the difference between the two?
In a self-assessment system, what is sent to us is accepted as true and accurate. We do, however, review documents, forms and returns upon input for any discrepancies. For example, if a client makes improper calculations on a return, our upfront review procedures would catch this.
During an audit of an operation, document, form or return, the onus is placed on the client to present source and supporting documentation to substantiate any claims made in the original submission or application for registration or amendment.
14. What plans will be selected for audit?
As noted in Question 3 above, the Registered Plans Directorate will be focusing on auditing plans with a higher risk (see Question 4) of being in contravention of the Income Tax Act and Regulations. In addition, in order to monitor the risk profiles of all pension plans, some random audits may be performed on plans that are considered to be of lower risk.
Yes. At the CRA, we have taken steps to protect our clients' personal and financial information and ensure that it is kept confidential. We do not give your personal or financial information to anyone outside the CRA, unless:
- you have authorized us in writing to do so, or
- specific provisions in the legislation require or allow such disclosure.
Audits will range from a review of specific aspects of the plan's administration, to a complete general audit of the plan's administration. Specific items that may be examined include:
- Calculation and reporting of pension adjustments (PAs) and past service pension adjustments (PSPAs);
- Amounts transferred to and from the pension plan are calculated correctly and within the limits permitted under the Income Tax Act and Regulations (referred to in this answer as the ITA);
- Contributions made to the plan by employers and employees are eligible and permitted under the ITA;
- Benefits paid to plan members are determined in accordance with the terms of the plan and within the limits of the ITA;
- Reporting of information on the administration of the plan, including returns and slips, is complete and accurate; and
- Funding of benefits and the investment of plan assets meet the requirements of the ITA.
Audits of the plan may also be completed in conjunction with a general corporate audit carried out by the CRA.
In conjunction with the audit, you will be asked to provide the information necessary for us to determine whether the plan is being administered in accordance with the requirements of the ITA.
17. What is the difference between a specific audit of the plan's administration and the general audit that the CRA is currently performing on certain plans (i.e., field audit)? Will the CRA continue to do field audits?
During the audit of a plan's administration, the CRA focuses on specific aspects of the administration of a pension plan, such as the determination of pension adjustments or the payment of benefits. Information required to conduct the audit is requested from the plan sponsor and is reviewed at our office.
General audits (or field audits) are usually performed at the plan sponsor's place of business, and are part of a general audit of the employer. The audits are broader in their scope. We will continue to conduct field audits.
18. Am I guaranteed to be audited?
No. We do not have the resources available to us to audit each of the over 19,000 pension plans registered under the Income Tax Act and Regulations. Those plans that meet the higher risk criteria (see Question 4) are more likely to be selected for audit, but even then we don't have sufficient resources to audit all high-risk pension plans. We will be auditing based on risk profiles, leads or information from other files and audits or from outside sources, and the random sampling of all plans to ensure that we can audit a representative proportion of all plans registered with us.
19. Will the CRA be providing any outreach for its clients on these changes?
The Registered Plans Directorate, in consultation with our clients and the Pension Advisory Committee (for more information on this committee, please see Question 2), is examining various issues and our responses to them. These responses may include changes to our telephone and written general enquiries services, additional publications and possibly an outreach program with seminars and presentations in selected cities across the country. Should any outreach programs be developed, information about them will be communicated on our Web site at www.cra-arc.gc.ca/tax/registered/menu-e.html.
We have also introduced an electronic mailing list (www.cra-arc.gc.ca/eservices/maillist/subscribe-e.html) where interested parties can subscribe and be notified when new items are posted to the Web site.
20. Is the CRA contemplating any new penalties and, if so, of what sort?
The Income Tax Act (the "Act") and Regulations currently provide that employers or administrators can be penalized for the failure to file returns, requested information or documents within certain timeframes and for failing to comply with a duty or obligation under the Act or Regulations.
The revocation of a pension plan can have severe consequences for plan members who may have no input regarding the operation of the plan. In consultation with the Pension Advisory Committee (for more information on this committee, please see Question 2), the CRA is studying the feasibility of other penalties targeting the responsible parties as a less harsh option to revocation where a plan has been administered contrary to the plan terms and/or the Act and Regulations. Amendments to add new penalties must be recommended by the Department of Finance and approved by Parliament.
21. If my plan does not comply with legislation, what will the consequences be?
Each situation will be dealt with on a case-by-case basis. Depending on the frequency and severity of the particular problem and the frequency of problems with the offender, consequences may range from an education letter to revocation of the plan.
We prefer to encourage self-compliance and will assist in correcting problems and interpretations of the Income Tax Act and Regulations. Those who continue to contravene the sections of the Income Tax Act and Regulations will face more severe consequences.
22. To whom can I address my concerns or comments about the changes?
If you have any concerns or comments about the changes to our processes, you can mail them to the Director General at:
Registered Plans Directorate
Canada Revenue Agency
Ottawa ON K1A 0L5
or contact us by telephone:
For service in English 613-954-0419
For service in French 613-954-0930
Toll free elsewhere in Canada
For service in English 1-800-267-3100
For service in French 1-800-267-5565
Agents are available Monday to Friday (except holidays) from 8 a.m. to 5 p.m. (Eastern time). Any calls we receive after those hours will be directed to a voicemail system. We will return the calls the following business day.
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