Compliance Bulletin No. 7
May 10, 2011
For the past several years, the Registered Plans Directorate has issued compliance bulletins to inform industry professionals about non-compliance issues relating to deferred income and savings plans and to outline the tax implications for members and employers. In Compliance Bulletin No. 6r1, we informed the deferred income and savings plans industry of concerns we had about excess qualifying transfers related to past service pension adjustments, as well as the consequences of holding non-qualified investments in registered retirement savings plans. We also provided information about the new tax-free savings account and registered disability savings plans (RDSPs). Finally, we provided more information about the imposition of penalties under subsections 162(5) and 162(7) of the Income Tax Act.
This year's bulletin focuses on a number of other areas of concern relating to deferred income and savings plans and their potential implications. These include the filing of RDSP applications; pensionable earnings from employee profit sharing plans (EPSPs) and the associated pension adjustments (PAs); and making contributions and calculating and reporting PAs for specified multi-employer plans (SMEPs). We also reinforce the consequences for not filing prescribed forms and information returns as required under the Income Tax Act or the Income Tax Regulations.
Registered disability savings plans
A disability savings plan is automatically registered at the time the holder signs the contract and all conditions of subsection 146.4(2) of the Income Tax Act are met. The Registered Plans Directorate approves RDSP specimen plans and confirms registration of the contracts entered into under those specimen plans for the purposes of the Act.
An RDSP issuer must electronically provide the Government of Canada with information about each RDSP contract in order to confirm registration of that contract. Issuers must ensure that all of the required information is provided with the application, and is correct. If any of the information is missing or invalid at the time of application for registration, the electronic application is rejected or nullified. For details: Register a disability savings plan.
Remember that a plan's failure to maintain registration will result in the plan trust being taxable. For more information on the taxation of inter vivos trusts, please refer to the T3 Trust Guide (T4013).
A plan's failure to maintain registration will also have an impact on the beneficiary's eligibility to receive all or some of the Canada Disability Savings Grant or Canada Disability Savings Bond amounts. For more information on the grant and bond, go to Registered Disability Savings Plan (RDSP) (Employment and Social Development Canada Web site) .
Registered pension plans
Pensionable earnings from an employee profit sharing plan and pension adjustments accrued under the associated employer-sponsored registered pension plan
Amounts allocated to an employee under an EPSP must be reported as income as stated in paragraph 6(1)(d) of the Act. They are considered pensionable earnings for the purposes of a benefit accrual under an employer-sponsored registered pension plan.
Remember that PAs must be reported whenever there is a benefit accrual under a defined benefit provision or contribution made to a defined contribution provision under an employer-sponsored pension plan, as stated in section 8300 of the Regulations. Any PAs that relate to allocations under an EPSP must be reported on income slip T4, Statement of Remuneration Paid, if the individual is in receipt of one, or on a supplementary slip T4A, Statement of Pension, Retirement, Annuity and Other Income.
Making contributions and calculating and reporting pension adjustments for Specified Multi-Employer Plans when no benefit accrual occurs
Employers who participate in a SMEP do so pursuant to a collective bargaining or similar agreement, and contributions are made by employers in accordance with a negotiated formula. The contributions each employer makes must be determined, at least in part, by using some measure, such as hours worked, that is specific to individual employees of the employer. This condition ensures that, if a plan qualifies as a SMEP, the rules for calculating PAs as set out in subsection 8301(5) of the Regulations will apply. The PA for a SMEP is based on contributions made to the plan.
Employer contributions to a defined benefit provision of a SMEP made in accordance with the plan as registered are deemed by paragraph 8510(6)(a) of the Regulations to be eligible contributions for the purposes of paragraph 8502(b), which exempts them from the conditions set out in subsection 147.2(2) of the Act. In other words, contributions required by a collective bargaining agreement are eligible contributions even though they are not made on the advice of an actuary, nor are they prescribed contributions.
A collective agreement may require that contributions be allocated to a SMEP, either by the individual, by an employer on behalf of an individual, or a combination of the two, as a condition of employment. This might result in contributions being allocated to the plan even where the individual does not accrue a benefit under the plan. For example, a retiree returns to work but continues to receive his or her benefit from the plan. The collective agreement, which governs the plan provisions, prevents the individual from accruing additional benefits under the plan, but still requires that contributions be allocated to the plan on his or her behalf. This is not prevented or prohibited by the Act or Regulations, but a PA must be reported on behalf of the individual.
Specified Multi-Employer Plans are excluded from the member-specific PA limits contained in subsection 147.1(9) of the Act. However, paragraph 8510(7)(a) of the Regulations states that the combined employer and member contributions cannot exceed 18% of the total of all employees' compensation for the particular year.
Remember that, as noted in Compliance Bulletin No. 6r1, effective January 1, 2010, the Registered Plans Directorate now applies penalties under subsections 162(5) and 162(7) of the Act. A registered pension plan must file, with or without notice, prescribed forms and information as and when required by the Act or the Regulations. The Canada Revenue Agency can impose financial penalties under subsection 162(7) of the Act for failure to file an information return, and under subsection 162(5) for failure of any person to provide any information on a prescribed form made pursuant to the Act or Regulations. If you can prove in writing that you made a reasonable effort to obtain the required information but were unable to do so, you could be exempt from the 162(5) penalty. We will assess the situation based on the evidence presented.
Where to get help
Registered Plans Directorate
You can find more information at Savings and pension plan administration.
Toll-free in Canada and the United States: 1-800-267-3100.
If you are calling from outside of Canada or the United States, call us collect at 613-221-3105. The Registered Plans Directorate accepts collect calls.
By mail and courier
Registered Plans Directorate
Canada Revenue Agency
875 Heron Rd
Ottawa ON K1A 0L5
We welcome feedback on this bulletin. Send comments by email to RPD.LPRA2@cra-arc.gc.ca.
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