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Chapter 4 - 147.3 – Transfers

 

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4 147.3 – Transfers

Section 147.3 of the Act provides for the direct transfer of amounts out of an RPP. Amounts can be transferred out of an RPP to another RPP, RRSP or RRIF. Amounts can’t be transferred out of an RPP to a DPSP.

On conversion, where a DB provision is replaced by an MP provision, under the same RPP, amounts can be transferred from the prior provision to the replacement provision if the transfer complies with the conditions set out in this section of the Act. An MP provision that is replaced by a DB provision is also considered a conversion.

The provisions in this section of the Act do not apply to the purchase of an annuity contract as provided under section 147.4 of the Act. Where an amount is paid out of a DB provision to purchase an annuity contract, it is not a transfer of an amount but a payment out of an RPP. Therefore, since it is not a transfer, it is not subject to a prescribed amount, as defined in section 8517 of the Regulations, which applies when a lump-sum amount is transferred from a DB provision to an RRSP under subsection 147.3(4) of the Act.

Plan text
The terms of the plan must clearly provide for the transfer of amounts into and out of the plan. Transfers made either to or from an RPP that are not expressly provided for within its plan terms would mean that the plan is not being administered in accordance with the terms of the plan as registered.

In providing for specific transfers, the plan terms need only indicate that the particular transfer(s) will be done in accordance with the Act. There is no need for the terms to contain the specific limits set out in either the Act or Regulations. For example, under a DB provision, the terms do not have to state that the amounts transferred to an RRSP, RRIF or MP provision of another RPP will not exceed a prescribed amount set out in section 8517 of the Regulations.

In the case of an MP provision as well as a DB provision of a SMEP, if the plan terms allow for the transfer of amounts into the plan, certain amounts can be transferred in from another RPP, RRSP, RRIF or DPSP in respect of plan members without generating a PA/PSPA if the amounts are considered excluded contributions as defined in subsection 8300(1) of the Regulations.

If amounts are transferred to a DB provision for the purpose of providing a member with benefits in connection with a past service event after 1989, such increase in benefits would generally result in a PSPA. However, certain types of transfers to the DB provision may be considered a qualifying transfer, and are thus applied to reduce the member’s PSPA associated with the crediting of the past-service benefits. Refer to the definition of qualifying transfer in subsection 8303(6) of the Regulations for more information.

The terms of the plan must clearly indicate how the amounts being transferred in are to be treated.

Cross references:

Pension Adjustment Limits – 147.1(8) & (9)
Plan as Registered – 147.1(15)
Additional Voluntary Contribution – 248(1)
Excluded Contribution – 8300(1)
Qualifying transfer – 8303(6)
Permissible Contributions – 8502(b)
Transfer of Property between provisions of the same plan – 8502(k)
Net Contribution Account – 8503(1)
Newsletter No. 04-1, Transfer from a Defined Benefit Provision to a Money Purchase Provision, and RRSP, or a RRIF and Transfers between Defined Benefit Provisions
Newsletter No. 95-5, Conversion of a Defined Benefit Provision to a Money Purchase Provision
IT-528, Transfer of Funds Between Registered Plans

4.1 147.3(1) – Transfer – money purchase to money purchase, RRSP or RRIF

Subsection 147.3(1) of the Act permits the transfer of funds from an MP provision to another MP provision, where the transferred amount is credited to the member's account, or to an RRSP or a RRIF in which the member is the annuitant.

A life income fund (LIF), a locked-in retirement income fund (LRIF) and a locked in retirement account (LIRA) are the locked-in versions of a RRIF and RRSP. These locked-in plans are established from funds transferred from an RPP that is subject to federal or provincial pension benefits standards legislation. The federal or provincial regulator of the originating RPP imposes the locking-in requirements to limit the timing, as well as the amount, a member can subsequently withdraw from the LIF, LRIF, or LIRA, once the funds have been transferred from the RPP to any of these registered vehicles.

4.2 147.3(2) – Transfer – money purchase to defined benefit

Only amounts allocated to the member’s MP account may be transferred to the DB provision. Unallocated forfeited amounts cannot be transferred. The amounts transferred must be used solely to fund benefits in respect of the member.

4.3 147.3(3) – Transfer – defined benefit to defined benefit

Any amounts held in connection with a DB provision, including surplus, may be transferred from a DB provision to another DB provision. There is no matching of amounts to individuals. The funds transferred under the provision to another provision must be in respect of one or more members of the initial provision.

This transfer typically occurs when an employee terminates employment with one employer and becomes employed by a subsequent employer, and both employers sponsor DB RPPs. Upon becoming employed with the subsequent employer, the individual’s service with the prior employer is recognized under the new employer's plan. The new plan may require a transfer of funds from the prior plan to fund the past service benefits before the service can be recognized.

Individual pension plan (IPP)

Effective March 19, 2019, a transfer is prohibited from a DB provision to a DB provision of an IPP (as defined in subsection 8300(1) of the Income Tax Regulations) in respect of benefits that are attributable to employment with a former employer that is not a participating employer (or its predecessor employer) in the IPP.

Cross references:

Individual Pension Plan – 8300(1)
Predecessor Employer – 8500(1)
Eligible Service – 8503(3)(a)
Eligible Service – pre-reform – 8(e) IC 72-13R8 Employees’ Pension Plans
Newsletter No. 04-1, Transfer from a Defined Benefit Provision to a Money Purchase Provision, and RRSP, or a RRIF and Transfers between Defined Benefit Provisions

4.4 147.3(4) – Transfer – defined benefit to money purchase, RRSP or RRIF

Only the member's actual or contingent entitlement to DB benefits (excludes actuarial surplus) may be transferred and the amount must be applied to provide MP benefits for the member, or be transferred to an RRSP or a RRIF under which the member is the annuitant. Before amounts may be transferred under subsection 147.3(4) of the Act, a lump-sum commuted value of the benefit must be determined. This must be done in accordance with paragraph 8503(2)(m) and subsection 8503(2.1) of the Regulations.

Alternatively, rather than providing a commuted value under paragraph 8503(2)(m) of the Regulations, an RPP may provide a member with a termination benefit based upon paragraph 8503(2)(h). Once the lump-sum amount is determined based upon the terms of the RPP (and in accordance with either paragraphs 8503(2)(h) or (m)), an additional calculation, a prescribed amount will also be determined.

The prescribed amount, determined under section 8517 of the Regulations, is used to calculate how much of the DB lump-sum amount payable from the RPP may be transferred tax-free to the MP provision, RRSP, or RRIF for the member’s benefit. If the prescribed amount is greater than the lump-sum payable from the plan, the entire lump-sum may be transferred on a tax-free basis to any of these registered vehicles.

A lump-sum amount that is greater than the prescribed amount is generally unable to be transferred on a direct, tax-free basis, to an MP, RRSP, or RRIF and must be brought into taxable income in the year received. If, however, a transfer is made to an MP provision, an RRSP, or a RRIF that is in excess of the prescribed amount, then the particular RPP will be in a revocable position unless the excess was transferred due to pension benefits legislation requirements. In regards to the plan member, the portion of the amount transferred that was in excess of the prescribed amount is deemed to have been paid to the individual and to have been contributed by the individual to the transferee plan. As a consequence, the amount is included in the individual's income. The rules for tax deductibility of contributions apply, and the Part X.1 tax on over-contributions may apply.

A direct transfer of funds from a pre-October 1968 or a 1980 shareholder plan to a RRIF is not acceptable. Payment of benefits from these plans must be by way of a life annuity contract or a transfer to a locked-in RRSP.

Most provinces permit the transfer of benefits subject to the plan meeting solvency requirements. Generally, when the transfer ratio (assets/liabilities) is less than one, the amount that may be initially transferred is limited to the commuted value of the benefits multiplied by the transfer ratio. The balance, together with interest thereon, is payable at a subsequent date, generally within five years.

This two-stage transfer is permitted under the Act, and both transfers are subject to the applicable prescribed limit at the actual transfer dates.

Surplus – second-stage transfers
Subsequent to the aggregate of all members' benefits having been commuted and paid in cash or transferred tax-free under subsection 147.3(4) of the Act (first-stage transfers), a plan administrator may allocate the surplus remaining in the terminated plan to the members. If the allocation is a straightforward amount of cash and the member wants it transferred to the member's account under an MP provision, this is acceptable under subsection 147.3(4.1) of the Act. However, the transfer of surplus to an MP provision for the benefit of the member, under subsection 147.3(4.1) generates a pension credit for the member, and thus the transfer of surplus to an MP provision is subject to the PA limits set out in subsections 147.1(8) and (9) of the Act.

In the case of an RPP that is winding-up, subsection 8501(7) of the Regulations allows any residual actuarial surplus at wind-up to be used to provide previously terminated members with stand-alone ancillary benefits. However, the ancillary benefits must be in respect of service before 1990, and the Minister must approve the application of subsection 8501(7).

In conjunction with subsection 8501(7) of the Regulations, subsection 8517(3.1) provides for a special transfer limit (prescribed amount) for the ancillary benefits that are provided under subsection 8501(7). Upon Ministerial approval under subsection 8517(3.1), any unused portion of the member’s prior transfer limit (the prescribed amount determined in relation to the previous transfer minus the amount previously transferred ) can be used to support the transfer of the commuted value of ancillary benefits that are subsequently provided under subsection 8501(7). An example to this effect is provided within the Department of Finance explanatory notes for subsection 8517(3.1).

Refund of excess contributions
A refund of excess employee contributions, resulting from funding rules under PBAs & the PBSA, may be transferred to an RRSP, a RRIF or an MP provision, under subsection 147.3(4) of the Act, only to the extent that they fall within the prescribed amount. The excess contributions are considered a permissible benefit under subparagraph 8502(c)(iii) of the Regulations. Essentially, the amount that can be transferred to an RRSP, a RRIF or an MP provision is the lesser of the commuted value of the pension plus excess employee contributions, and the prescribed amount.

* Note the exception below, as set out in subsection 147.3(6) of the Act, for contributions that are refunded for periods prior to 1991.

Purchase of annuity
The Act does not provide for the transfer of funds between an annuity contract and an RPP. The purchase of an annuity contract with the commuted value of a member's benefits must be in accordance with paragraph 147.4(1) of the Act. The annuity contract must provide for the payment of a pension that would have been payable in accordance with the terms of the plan, as registered. The purchase of an annuity contract that provides for the payment of a pension that would not have been payable in accordance with the terms of the plan as registered will be subject to the conditions in section 147.4 of the Act. Paragraph 147.4(2) provides that the amount used to purchase the annuity contract will be considered income received by the taxpayer in accordance with paragraph 56(1)(a) of the Act.

Cross references:

Single amount – 147.1(1)
Transfer of pre-1991 contributions – 147.3(6)
Division of transferred amounts – 147.3(11)
Benefits provided with surplus on plan wind-up – 8501(7)
Permissible Distribution – 8502(d)(ii)
Catch-up payments not considered a single amount – 8503(2)(a)
Pension Benefits Standards Legislation - 8513
Prescribed amount – 8517
Benefits provided with surplus on plan wind-up – 8517(3.1)
Newsletter No. 04-1, Transfer from a Defined Benefit Provision to a Money Purchase Provision, and RRSP, or a RRIF and Transfers between Defined Benefit Provisions
Newsletter No. 98-2, Treating Excess Member Contributions under a Registered Pension Plan
Newsletter No. 94-2, Technical Questions and Answers

4.5 147.3(4.1) – Transfer of surplus – defined benefit to money purchase

Subsection 147.3(4.1) of the Act permits a surplus to be transferred from a DB provision to an MP provision where the transferred amounts are credited to the members' accounts and included in their PA. When there is a surplus, or unallocated pre-1990 forfeitures under the MP provision, the surplus from a DB provision can’t be transferred using this subsection.

Refer to paragraph 8502(k) in this manual for a possible transfer of surplus between provisions of the same RPP. Also, refer to subsection 147.3(8), for another circumstance where a surplus can be transferred from a DB provision to an MP provision.

Cross references:

PA limit – 147.1(8), (9)
MP Plan Replaces DB Plan – 147.3(8)
Pension credit – MP – 8301(4)
Permissible Distribution – 8502(d)(ii)
Transfer of property between provisions – 8502(k)
Employer contributions not permitted – 8506(2)(c)
Newsletter No. 95-5, Conversion of a Defined Benefit Provision to a Money Purchase Provision

4.6 147.3(5) – Transfer to RPP, RRSP or RRIF for spouse on marriage breakdown

Subsection 147.3(5) of the Act allows for the direct transfer of funds from an RPP to another RPP or an RRSP or RRIF for the benefit of the member’s spouse, common-law partner, former spouse or former common-law partner on the breakdown of marriage or partnership. The amount transferred cannot include any portion that relates to an actuarial surplus.

The transfer is made pursuant to a court order, decree or written agreement relating to a division of property between the member and the spouse, common-law partner, former spouse or former common-law partner.

Transfers under subsection 147.3(5) of the Act are not subject to the prescribed amount limit in section 8517 of the Regulations.

4.7 147.3(6) – Transfer – pre-1991 contributions

This subsection allows for a member who is entitled to receive a return of pre-1991 contributions made to the DB plan (as well as any member contributions made to a former DB plan that were transferred into the plan under subsection 147.3(3) of the Act) to be transferred to another RPP, an RRSP or a RRIF for the member’s benefit. Such member contributions could be:

DB plans may no longer provide that excess employee contributions will simply be "reclassified" as an additional voluntary contribution (AVC). Paragraph 8502(k) of the Regulations does not allow property held under the DB provision to be made available to pay benefits under the AVC account (which is an MP provision) unless it would qualify as a transfer under section 147.3 of the Act, had it been between two separate plans. This means that only amounts that would qualify under subsection 147.3(6) may stay in the plan.

A return of the member's required contributions to a spouse, common-law partner or former spouse or common-law partner would not be a permissible distribution under subparagraph 8502(d)(iv) of the Regulations and can’t be transferred to an RRSP or other plan as described in subsection 147.3(6) of the Act.

Note that subsection 8511(2) of the Regulations requires that those member contributions, which do not qualify, must be paid out to members as soon as practicable.

Cross references:

DB Contributions made to a prior plan – 8500(9)
Transfer of Property Between Provisions – 8502(k)
Conditions Applicable to Amendments – 8511(2)
Pension Benefits Standards legislation - 8513
Newsletter No. 98-2, Treating Excess Member Contributions under a Registered Pension Plan

4.8 147.3(7) – Transfer – lump sum benefits on death

Subsection 147.3(7) of the Act allows for the direct transfer of a single amount on behalf of the spouse, common-law partner, former spouse or former common-law partner of a deceased member, as a consequence of the member’s death. Transfers under subsection 147.3(7) are not subject to the prescribed amount limit in section 8517 of the Regulations.

The spouse or common-law partner or former spouse or common-law partner may transfer death benefits to an RPP, an RRSP or a RRIF. Plans may therefore provide for the transfer of death benefits to an RPP, an RRSP or a RRIF in respect of the spouse or common-law partner or former spouse or common-law partner.

A return of the members required contributions to a spouse, common-law partner or former spouse or common-law partner would not be a permissible distribution under subparagraph 8502(d)(iv) of the Regulations and can’t be transferred to an RRSP or other plan as described in subsection 147.3(7) of the Act.

Cross references:

Commuted Value – Pre-Retirement Death – 8503(2)(i), (j), (n)
Undue Deferral of Payment – 8503(4)(d)

4.9 147.3(7.1) – Transfer where money purchase plan replaces money purchase plan

Subsection 147.3(7.1) of the Act allows the surplus to be directly transferred from an MP provision to another MP provision of another plan, where the second plan replaces the first plan. This subsection is intended to apply when there is a plan split or a reorganization of plans, and must be approved by the Minister.

Cross references:

Surplus – 8500(1)
Surplus for 147.3(7.1) – 8500(1.1)
Permissible Distribution – 8502(d)(ii)
Commuted Value – Pre-Retirement Death – 8503(2)(i), (j), (n)

4.10 147.3(8) – Transfer where money purchase plan replaces defined benefit plan

This transfer applies in conjunction with a transfer done under subsection 147.3(4) of the Act. In the event that the conversion from DB to MP occurs within the existing RPP, the transfer must also be in accordance with subsection 147.3(4), as set out in paragraph 8502(k) of the Regulations. Refer to subsection 147.3(4) of the Act for the amount that may be transferred and allocated to each member's MP account from the DB plan or provision.

In a conversion or replacement situation, in conjunction with transfers from a DB to MP under subsection 147.3(4) of the Act, and following Ministerial approval, subsection 147.3(8) permits the DB surplus to be transferred to the MP provision on an unallocated basis (that is, not allocated to the members' MP accounts). The surplus can be used for the operation of the plan, such as plan expenses, and to satisfy the employer’s required contributions under the MP provision.

While this section permits the entire DB surplus to be transferred to the MP provision of the plan, under paragraph 8506(2)(c) of the Regulations, an employer can’t make contributions to the MP provision while a surplus exists within that provision. For example, assuming that the employer is required to make contributions based on 5% of members’ salary, the employer would have to use the surplus now within the MP provision to satisfy this obligation and could not make further contributions to the MP provision until the surplus is exhausted.

Cross references:

Pension Credit – MP – 8301(4)
Surplus – 8500(1)
Employer contributions not permitted – 8506(2)(c)

4.11 147.3(9) & 147.3(10) – Taxation of amount transferred

Under subsection 147.3(9) of the Act, an amount transferred from an RPP in accordance with subsections 147.3(1) to (8) is not required to be included in the individual’s income. As well, no deduction can be made in respect of any transfer.

Under subsection 147.3(10) of the Act, if an amount is transferred that is not in accordance with subsections 147.3(1) to (7) of the Act, the amount is deemed to have been paid from the plan and it is included in the individual’s income. In addition, the individual will have been deemed to have paid (contributed) the excess amount to the receiving plan, and in the case of an RRSP “contribution”, the individual may be subject to Part X.1 tax if he or she does not have sufficient RRSP room to support this contribution.

The income inclusion and deemed contribution rules of subsection 147.3(10) of the Act do not apply to excess transfers within the same plan.

Cross reference:

Amount of RRSP premium deductible – 146(5)

4.12 147.3(11) – Division of transferred amount

Subsection 147.3(11) of the Act states that, when an amount is transferred from an RPP to another RPP, an RRSP, or RRIF:

  1. Subsection 147.3(9) applies in respect of the amount that was transferred in accordance with any of subsections 147.3(1) to (8). In other words, there is no income inclusion for the individual in respect of the amount transferred from the RPP and the individual can’t claim a tax deduction in respect of the amount transferred into the receiving plan.
  2. Subsection 147.3(10) applies in respect of the remainder. That is, any amounts transferred to the receiving plan(s) that were not in accordance with subsections 147.3(1) to (7) are deemed to be paid to the individual from the RPP (and are taxable under either paragraph 56(1)(a) or subsection 56(2) of the Act), as well as considered to be paid (contributed) by the individual to the receiving plan.

4.13 147.3(12) – Restriction re transfers

Under subsection 147.3(12) of the Act, an RPP becomes a revocable plan where an amount is transferred from the plan to another RPP, RRSP or RRIF that does not comply with subsections 147.3(1) to (8) of the Act. However, the plan is not a revocable plan if the amount is transferred on behalf of an individual where the amount is deductible under paragraphs 60(j) or 60(j.2) or the PBA/PBSA prohibits the payment of the amount.

Cross references:

Revocation of registration – notice of intention – 147.1(11)
Notice of revocation – 147.1(12)
Revocation of registration – 147.1(13)
PBA/PBSA - 8513

4.14 147.3(13) – Excess transfer

Subsection 147.3(13) of the Act applies where an amount is transferred from an MP plan on behalf of a member in a year in which the member’s PA limit is not respected. Where this occurs, the amount is deemed not to have been transferred under either subsection 147.3(1) or 147.3(2) and must be brought into the member’s taxable income.

Additionally, by virtue of subsection 147.3(10), the amount is considered to be a contribution made by the individual to the recipient RRSP or RPP. Therefore, it will be subject to the normal rules for deductibility and, in the case of a transfer to an RRSP, to the excess contributions tax in Part X.1.

Cross references:

Pension adjustment limits – 147.1(8)
Idem – multi-employer plans – 147.1(9)

4.15 147.3(13.1) – Withdrawal of excessive transfers to RRSPs or RRIFs

Subsection 147.3(13.1) of the Act allows an individual on whose behalf an excess contribution to an RRSP or RRIF has been made, after the amount is withdrawn from the RRSP or RRIF, to claim a deduction for the withdrawn amount to offset the amount required to be included in income.

Cross references:

Premium of payment under RRSP or RRIF – 60(i)
Amount of RRSP premium deductible – 146(5)

4.16 147.3(14) – Deemed transfer

Subsection 147.3(14) of the Act deems an amount that is paid from one pension plan, for the benefits under another pension plan to be deemed to be a transfer between those plans.

4.17 147.3(14.1) – Transfer of property between provisions

Under subsection 147.3(14.1) of the Act, where property held under one benefit provision is transferred to another provision under the same plan, and the transfer would not comply with subsections 147.3(1) to (7) of the Act, the amount is deemed to have been paid from the plan to the individual and is taxable. Also, the amount that is transferred to the other provision is deemed to have been a contribution by the individual to that provision.

It should be noted that, by virtue of subsection 147.3(14) of the Act read along with subsection 147.3(14.1), subsections 147.3(9) to (11) also apply where property held under one benefit provision is made available to pay benefits under another benefit provision of the same RPP without the property being actually transferred.

Cross references:

Taxation of amount transferred – 147.3(9) and (10)
Division of transferred amount – 147.3(11)
Deemed transfer – 147.3(14)

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