REVENUE CANADA CUSTOMS_ EXCISE AND TAXATION

							REVENUE CANADA CUSTOMS, EXCISE AND TAXATION

INTERPRETATION BULLETIN NUMBER: IT-124R6

DATE: January 31, 1995

SUBJECT: INCOME TAX ACT
Contributions to Registered Retirement Savings Plan

REFERENCE: Subsections 146(5) and (5.1) (also sections 60.01 and 204.1 to
204.3 and the definition of "disposition" in section 54; subsections
104(10.2), (27) and (27.1), 146(1), (2), (3), (6.1), (8.2), (8.21) and
(8.3),
146.3(5.1), 147.1(1), 147.3(13.1) and 152(6); and paragraphs 18(11)(b),
20(1)(bb), 40(2)(g), 60(i), (j), (j.1), (l) and (v), and 128(2)(d) of the
Income Tax Act; and sections 7800, 8303 and 8304; subsections 8301(1) to
(4),
(6), (8) and (9), 8307(3), (5), (6) and (7), 8308(2), and 8500(1) and (3)
of
the Income Tax Regulations)

Application

This bulletin cancels and replaces Interpretation Bulletin IT-124R5 dated
March 7, 1986. The comments in this bulletin reflect amendments to the
Income
Tax Act and Regulations resulting from Pension Reform. Since many of
these
amendments became effective for the 1991 and later taxation years, this
bulletin applies primarily to taxation years after 1990. For information
about
the rules that apply to taxation years before 1991, please refer to the
law.

Summary

This bulletin discusses the rules for determining the maximum amount a
taxpayer can deduct for a year after 1990 for registered retirement
savings
plan (RRSP) contributions. Generally, a taxpayer's RRSP deduction limit
for a
year is equal to 18% of the taxpayer's earned income for the previous
year (to
a maximum amount) minus an amount in respect of benefits that accrued to
the
taxpayer under registered pension plans (RPPs) and deferred profit
sharing
plans (DPSPs) for the previous year. The reduction to the RRSP deduction
limit
to reflect participation in RPPs and DPSPs is intended to provide that
all
taxpayers have a similar opportunity for tax-assisted retirement savings
regardless of differences in their pension arrangements. Also, if a
taxpayer
contributes less than allowed in a year, the taxpayer may be able to make
up
for the missed contributions in later years.

This bulletin also discusses the rules governing items such as the tax
imposed
under Part X.1 of the Act on excess contributions and the deduction
allowed
for withdrawals of undeducted contributions. Explanations of certain
terms
used throughout this bulletin are provided in the Glossary at the end.

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

General Comments paragraphs 1-3
Interest Expense and Administration Fees paragraph 4
Contributions to the Taxpayer's RRSP
Deduction of Premiums paragraphs 5-7
RRSP Deduction Limit paragraphs 8-9
Carryforward of Unused RRSP Deduction Room paragraphs 10-16
Persons Connected With Their Employers paragraphs 17-20
Part-Year Residents and Non-Residents paragraphs 21-22
Contributions to a Spousal RRSP paragraph 23
Payment of Premium in Kind paragraph 24
Deduction for Refund of Undeducted Contributions made after 1990
paragraphs
25-29
Part X.1 Tax on Excess Contributions made after 1990 paragraphs 30-34
Recontribution to an RRSP paragraphs 35-36
Bankrupt Taxpayers paragraph 37
Glossary
Earned Income
Net Past Service Pension Adjustment
Pension Adjustment
Premium
RRSP Deduction limit
RRSP Dollar Limit
Spouse

Discussion and Interpretation

General Comments

1. Various topics concerning RRSP contributions are discussed in detail
under
the headings listed above. Some of the topics, however, are not relevant
to
all taxpayers. For example, if the taxpayer has always been self-employed
or
has never worked for an employer who participates in an RPP, or a DPSP,
the
calculation of the RRSP deduction limit is fairly straightforward. It is
simply equal to the lesser of 18% of the taxpayer's earned income for the
previous year and the RRSP dollar limit for the current year. If the
amount a
taxpayer deducts for RRSP contributions is less than the taxpayer's RRSP
deduction limit for the year, the unused portion is generally carried
forward,
forming part of the taxpayer's RRSP deduction limit for the following
year.
The following example shows how the RRSP deduction limit for 1994 is
calculated for such a taxpayer if the taxpayer had earned income of
$30,000 in
1993 and unused RRSP deduction room from 1993 of $500.

(A) RRSP dollar limit for the current year (1994) $13,500
(B) 18% of earned income for the immediately preceding year (1993) (18%
multiplied by $30,000) = $5,400
Lesser of lines (A) and (B) $5,400
Plus:
Unused RRSP deduction room at the end of the immediately preceding year
(1993)
500
RRSP deduction limit for the current year (1994) $5,900

Taxpayers in this situation probably will find the comments in 8 to 20
below
of limited relevance since these paragraphs explain the law as it applies
to
more complex pension situations. Employees who belong to an PP or a DPSP
calculate the RRSP deduction limit in much the same way except that it is
reduced by the taxpayer's pension adjustments for the previous year and
the
taxpayer's net past service pension adjustment for the current year. Such
taxpayers, if they do not have a net past service pension adjustment for
the
current year, may also find the comments in 8 to 20 of limited relevance.
Information on the more common RRSP situations is contained in the income
tax
guide entitled RRSPs and Other Registered Plans for Retirement.

The meaning of the terms "net past service pension adjustment" and
"pension
adjustment" is discussed in the Glossary.

2. Contributions made to an RRSP after 1990 may, within specified limits,
be
deducted from income under paragraph 60(i). The contributions may be for
premiums (see explanation of the term "premiums" in the Glossary) paid to
a
plan under which the contributor or the contributor's spouse is the
annuitant
pursuant to subsections 146(5) and (5.1) respectively.

The meaning of the term "spouse" is discussed in the Glossary.
3. Subsections 146(2) and (3) set out the conditions for registration of
a
retirement savings plan. One condition is that no contributions may be
made to
an RRSP after its maturity. Paragraph 146(2)(b.4) provides that maturity
must
occur before the year in which the annuitant becomes 72 years of age.
Therefore, a taxpayer may contribute to his or her own RRSP up to the end
of
the year that the taxpayer turns 71 years of age. If the contribution is
made
to an unmatured RRSP under which the taxpayer's spouse is the annuitant,
the
taxpayer may contribute up to the end of the year in which his or her
spouse
turns 71 years of age.

Interest Expense and Administration Fees

4. Paragraph 18(11)(b) provides that interest on money borrowed by
taxpayers
to pay premiums to their own or their spouse's RRSP and interest on money
borrowed to make repayments of amounts withdrawn under the Home Buyers'
Plan
are not deductible in computing income. Also prohibited is the deduction
of
interest expense incurred to purchase an income-producing property (such
as
shares listed on a prescribed stock exchange in Canada or Canada Savings
Bonds) after the property is transferred to an RRSP as the payment of a
premium. Reasonable administration fees paid by a taxpayer to the trustee
of
the taxpayer's own RRSP (but not to the trustee of a spousal RRSP) are
considered to be deductible expenses in computing income from property
and are
not prohibited by the rules in section 18. These administration fees
relate to
the overall direction and management of the affairs of the RRSP trust and
are
for the type of services normally provided to the annuitant. Fees for
investment counselling are only deductible if they meet the conditions of
paragraph 20(1)(bb). That paragraph requires, among other things, that
the
services be for shares or securities of the taxpayer. As the investments
of
the RRSP trust are not the investments of the taxpayer, the taxpayer
cannot
deduct the fees under paragraph 20(1)(bb) for investment counselling
provided
to the trust. On the other hand, brokerage fees and commissions incurred
by
the RRSP trust form part of the cost of acquiring or disposing of
investments.
Accordingly, they should be accounted for in determining the cost of the
investment and in determining its proceeds of disposition.

Contributions to the Taxpayer's RRSP

Deduction of Premiums
5. Subsection 146(5) contains the rules governing the deductibility of
premiums paid by a taxpayer to RRSPs under which the taxpayer is the
annuitant. Beginning in 1991, the maximum amount that a taxpayer may
deduct in
computing income for a year is limited to the lesser of:

a) the taxpayer's RRSP deduction limit for the year (see 8 below); and
b) the amount, if any, by which the total of all premiums paid after 1990
and
within 60 days after the end of the year (other than the exceptions noted
in 7
below) exceeds the amount, if any, by which:
- the total amount deducted by the taxpayer under subsection 147.3(13.1)
for
the year or a preceding year: exceeds
- the total amount for transfers before 1991 from RPPs, deemed by
paragraph
147.3(10)(b) or (c) to be a premium paid by the taxpayer to an RRSP.

Subsection 147.3(13.1), referred to in (b) above, provides a deduction
for
withdrawals of RRSP premiums resulting from an excess transfer of a lump
sum
payment from an RPP to an RRSP or a RRIF.

Any RRSP premiums paid after 1990 may be carried forward and deducted
under
subsection 146(5) for any subsequent year, to the extent that they were:
- not deducted for the year in which they were paid, or
- in the case of premiums paid in the first 60 days of a year, not
deducted
for the immediately preceding year.

6. If, at any time in a year, the taxpayer's undeducted premiums (as
determined under subsection 204.2(1.2)), exceed the taxpayer's RRSP
deduction
limit (see 8 below), the taxpayer may be liable for tax under Part X.1 on
the
excess contributions until they are withdrawn from the plan (see 30
below).
The taxpayer may withdraw the excess contributions out of the RRSP on a
tax-
free basis if the withdrawal is made within a specified time (see 27
below for
the conditions that must be met).

7. Certain premiums may not be deducted under subsection 146(5) in
computing
income for a year. These include all or any portion of premiums:
a) that were paid to an RRSP at a time when the taxpayer was not the
annuitant
of the RRSP;

b) that were deducted in computing the taxpayer's income for a preceding
taxation year;

c) that were designated as a transfer of:
- certain superannuation or pension benefits, or eligible amounts
described in
section 60.01, subsection 104(27) or (27.1) or paragraph 147(10.2)(d), to
the
extent permitted under paragraph 60(j);
- retiring allowances under paragraph 60(j.1); or
- certain payments such as RRSP refunds of premiums, RRSP commutation
benefits, or eligible amounts in respect of registered retirement income
funds
(RRIFs) (within the meaning assigned by subsection 146.3(6.11)), to the
extent
provided under paragraph 60(l);

d) for which the taxpayer has received a payment that was deducted under
subsection 146(8.2) in computing the taxpayer's income for a preceding
taxation year (see 25 to 29 below); or

e) that were deductible under subsection 146(6.1) in computing the
taxpayer's
income for any taxation year (see 35 and 36 below).

Transfers of refunds of premiums are covered in the current version of
IT-500,
Registered Retirement Savings Plans - Death of Annuitant.

Note: Bill C-59 proposes to amend subsection 146(5) so that contributions
made
by a taxpayer to his or her RRSP after March 1, 1994, would generally not
be
deductible if the contribution is withdrawn as an "eligible amount" (as
defined in subsection 146.01(1)) under the Home Buyers' Plan, within 90
days
after it was made, to the extent that the contribution is greater than
the
fair market value of the balance in the RRSP after the withdrawal.

RRSP Deduction Limit
8. After 1990, the maximum amount a taxpayer may deduct for RRSP
contributions
under subsection 146(5) is limited to the taxpayer's RRSP deduction limit
for
the year. The rules for calculating the RRSP deduction limit are
contained in
subsection 146(1) under the definition of "RRSP deduction limit." In
general,
a taxpayer's RRSP deduction limit for a particular year is equal to:

the taxpayer's unused RRSP deduction room at the end of the immediately
preceding year (see 10 to 16 below);

plus: the amount, if any, by which the lesser of:
a) 18% of the taxpayer's "earned income" for the immediately preceding
year,
and
b) the "RRSP dollar limit" for the particular year, exceeds
c) the taxpayer's "pension adjustments" (Pas) for the immediately
preceding
year or a prescribed amount (see the Note below) for the year,
minus: the taxpayer's "net past service pension adjustment" (net PSPA)
for the
particular year.

A taxpayer's Pas can be generally described as a measure of the total
benefits
that accrued to the taxpayer in the year under all employer-sponsored
RPPs and
DPSPs. A taxpayer's net PSPA is essentially a measure of the improvements
made
to the taxpayer's benefits under a defined benefit RPP in respect of
post-1989
past service. The definition of net PSPA includes any amounts prescribed
for
this purpose. In addition, the RRSP deduction limit allows for a
carryover of
unused RRSP deduction room (see 10 to 16 below). Unused RRSP deduction
room
will usually result if the amount a taxpayer deducts for RRSP
contributions
for a particular year is less than the taxpayer's RRSP deduction limit
for the
year. The RRSP deduction limit of certain taxpayers may be reduced if
they are
connected with their employers and they join their employers' RPPs or
recommence to accrue lifetime retirement benefits under their employers'
RPPs.
The comments in 17 to 20 below explain this special rule in greater
detail.

Note: The following proposed changes may affect an individual's PA or
PSPA,
and the calculation of an individual's RRSP deduction limit for a year.
These
proposed changes relate to "government-sponsored retirement arrangements
(GSRA)," "foreign plans (Fps)," and "specified retirement arrangements
(SRAs)." Proposed subsections 8308.4(1), 8308.1(1), and 8308.3(1) of the
draft
Regulations released by the Minister of Finance on December 18, 1992,
contain
the definitions of "GSRA," "FP," and "SRA," respectively.
In determining a taxpayer's RRSP deduction limit as defined under "RRSP
deduction limit" in subsection 146(1), a prescribed amount in respect of
a
taxpayer for the year is deducted. The draft Regulations propose to add
new
subsection 8308.4(2). This proposed subsection prescribes an amount for
certain individuals who are entitled to benefits under a "GSRA" which is
defined in new subsection 8308.4(1) of the draft Regulations. As a
result, the
prescribed amount for a taxpayer who is entitled to benefits under a GSRA
is
deducted in determining the taxpayer's RRSP deduction limit. If
promulgated as
proposed, new subsection 8308.4(2) will apply for 1994 and subsequent
taxation
years.

In addition, the draft Regulations propose to include new section 8308.2.
This
proposed section prescribes an amount for certain individuals who are
resident
in Canada and who participate in foreign plans. The prescribed amount is
deducted in determining the individual's RRSP deduction limit as defined
under
"RRSP deduction limit" in subsection 146(1). If promulgated as proposed,
new
subsection 8308.2 of the draft Regulations will apply for 1994 and
subsequent
taxation years. Proposed section 8308.2 of the draft Regulations also
sets out
the calculation of the prescribed amount.

The draft Regulations also include a proposal to amend subsection
8301(1). It
is proposed that the definition of PA be amended to include additional
amounts
in the Pas of certain individuals who participate in Fps or SRAs. If
promulgated as proposed, subsection 8301(1) of the draft Regulations will
apply to the determination of Pas for Fps for 1992 and subsequent
taxation
years and for SRAs for 1993 and subsequent taxation years. The meaning of
the
term "pension adjustment" is discussed in the Glossary.

The definition of "net past service pension adjustment" in subsection
146(1)
includes in a taxpayer's net PSPA any amounts prescribed by new section
8308.4
of the Regulations which was included in the draft amendments to the
Regulations released on December 18, 1992. This proposed new section
affects
taxpayers who accrue benefits under "GSRAs." If new section 8308.4 of the
Regulations is promulgated as proposed, it will apply to 1994 and
subsequent
taxation years. The meaning of the term "net past service pension
adjustment"
is discussed in the Glossary.

In addition, the draft Regulations include a proposal to amend the
definition
of PSPA in subsection 8303(1) to include additional amounts in the PSPAs
of
certain individuals who participate in Fps or SRAs. If promulgated as
proposed, this amendment to subsection 8303(1) of the Regulations will
apply
to the determination of PSPAs for Fps for 1993 and subsequent taxation
years
and for SRAs for 1994 and subsequent taxation years.

9. The following example shows how the RRSP deduction limit for 1993 is
calculated for a taxpayer who is a member of an employer-sponsored RPP or
DPSP. The taxpayer had earned income of $30,000 in 1992, a 1992 PA of
$2,500
and no net PSPA for 1993.

Example A
Unused RRSP deduction room at the end of the immediately preceding year
(1992)
nil
plus: the amount, if any, by which the lesser of:
a) the RRSP dollar limit (see note 1 below) for the current year (1993)
12,500
and
b) 18% of earned income for the immediately preceding year (1992) (18%
multiplied by $30,000) 5,400
exceeds
c) total Pas (see note 1 below) for the immediately preceding year for
all
employers (1992) 2,500
5,400 minus 2,500 = 2,900 (see note 2 below)
minus: net PSPA (see note 1 below) for the current year (1993) nil
RRSP deduction limit for the current year (1993) $2,900

Note 1: RRSP dollar limit, Pas and net PSPA are explained in the
Glossary.
Note 2: This amount cannot be negative. Therefore, in cases where total
Pas
for the immediately preceding year exceed the lesser of the RRSP dollar
limit
for the current year and 18% of earned income for the immediately
preceding
year, this amount is nil.

As shown in the example, the RRSP deduction limit has been reduced to
reflect
the extent to which the taxpayer has been credited with benefits under
RPPs
and DPSPs in the previous year.

Carryforward of Unused RRSP Deduction Room
10. The term "unused RRSP deduction room" is defined in subsection
146(1). In
general, the unused RRSP deduction room of a taxpayer at the end of a
year is
the taxpayer's unused RRSP deduction room carried forward from the
immediately
preceding year, plus additional RRSP deduction room that became available
in
the year, minus RRSP deduction room used in the year. Because a
taxpayer's
unused RRSP deduction room at the end of a particular year forms part of
the
taxpayer's RRSP deduction limit for the immediately following year, the
taxpayer will not, subject to the carryforward limit discussed in 12 and
13
below, lose the RRSP deduction if the taxpayer does not fully use his or
her
RRSP deduction limit for a given year.

11. The term "unused RRSP deduction room" is limited to amounts
accumulated
for taxation years after 1990. For the purpose of calculating a
taxpayer's
RRSP deduction limit for 1991, paragraph (a) of the definition "unused
RRSP
deduction room" in subsection 146(1) provides that a taxpayer's unused
RRSP
deduction room at the end of 1990 is nil.

12. A taxpayer's unused RRSP deduction room at the end of a year is the
lesser
of two amounts. The first amount is the RRSP deduction room that is
available
for carryforward. This amount, which can be positive or negative, is
determined under the rules contained in subparagraph (b)(i) of the
definition
"unused RRSP deduction room" in subsection 146(1) and is essentially
equal to:

a) the taxpayer's RRSP deduction limit for the year
minus
b) the total of:
- the amounts deducted for the year under subsections 146(5) and (5.1)
for
premiums paid by the taxpayer to RRSPs under which the taxpayer or the
taxpayer's spouse is the annuitant; and
- the amounts deducted for the year under paragraph 60(v) for
contributions
made by the taxpayer to a prescribed provincial pension plan (see section
7800
of the Regulations).

The second amount (the "carryforward limit," as discussed in 13 below)
imposes
an overall limit on the amount of unused RRSP deduction room that may be
carried forward.

13. The carryforward limit, as determined under the rules contained in
subparagraph (b)(ii) of the definition "unused RRSP deduction room" in
subsection 146(1), is the greater of:

a) the total of all amounts for each of the current year and the six
immediately preceding years (but only years after 1990), that is equal to
the
lesser of:
- the RRSP dollar limit for the year; and
- 18% of the taxpayer's earned income for the previous year; and
b) 7 over 2 of the RRSP dollar limit for the current year.

The limitation in (a) allows unused RRSP deduction room to be carried
forward
for a maximum of seven years, starting with any RRSP deduction room not
used
in 1991. For taxpayers who participate in RPPs and DPSPs, the
carryforward
period will generally be longer because their Pas will usually keep the
amount
determined under subparagraph (b)(i) of the definition "unused RRSP
deduction
room" in subsection 146(1) less than the limitations in subparagraph
(b)(ii)
of that definition. The limitation in 13(b) allows a considerable amount
of
unused RRSP deduction room to be carried forward indefinitely. This rule
would
be beneficial to taxpayers who have retired or otherwise been out of the
labour force for a number of years as it prevents their unused RRSP
deduction
room from falling to zero.

14. A taxpayer's unused RRSP deduction room at the end of a year will
usually
be positive or zero, but it can also be negative. For example, a taxpayer
would have negative unused RRSP deduction room if the taxpayer has a net
PSPA
that exceeds the available RRSP deduction room for the year. Since a
taxpayer's unused RRSP deduction room at the end of a year forms part of
the
taxpayer's RRSP deduction limit for the following year, negative unused
RRSP
deduction room will usually reduce the taxpayer's RRSP deduction limit
for the
following year. The taxpayer has to carry forward the negative unused
RRSP
deduction room until it is offset by RRSP deduction room that becomes
available in later years.

15. To show how a taxpayer's unused RRSP deduction room at the end of a
year
is calculated, Example A in 9 above is continued below. Assume that the
taxpayer claimed an RRSP deduction of $2,000 for 1993.

Example B
RRSP deduction limit for the current year (1993) (per example A) $2,900
minus: total RRSP premiums deducted for the current year (1993) under
subsections 146(5) and (5.1) 2,000
minus: amount deducted for the current year (1993) under paragraph 60(v)
for
contributions to a prescribed provincial pension plan nil
Unused RRSP deduction room at the end of the current year (1993) ($2,900
minus
$2,000) = $900

In this example, the entire $900 is available for carryforward to 1994.

16. Example C below shows how the carryforward of unused RRSP deduction
room
may be restricted after 1997. Assume that the taxpayer's unused RRSP
deduction
room at the end of 1998 (before applying the carryforward limit) is
$72,250
and that the amounts shown below in column (2) reflect 18% of the
taxpayer's
earned income for each of the relevant years.

Example C
Part I - Calculation of unused RRSP deduction room before carryforward
limit
(subparagraph (b)(i) of the definition "unused RRSP deduction room" in
subsection 146(1))

(A) Unused RRSP deduction room before applying the carryforward limit
$72,250

Part II - Calculation of carryforward limit (subparagraph (b)(ii) of the
definition "unused RRSP deduction room" in subsection 146(1))

Total for the current year and the six immediately preceding years of the
amount for each year that is equal to the lesser of the RRSP dollar limit
for
the year and 18% of the taxpayer's earned income for the previous year:

*** Trancriber's note: The following is represented in 3 columns in
print.
Column 1 is RRSP dollar limit; column 2 is 18% of previous years' earned
income and column 3 is lesser of (1) and (2). ***
Year 1998: RRSP dollar limit $17,500(see note 1 below); 18% of previous
years'
earned income $8,900; Lesser of (column 1) and (column 2) $8,900

Year 1997: RRSP dollar limit $16,500(see note 1 below); 18% of previous
years'
earned income $15,200; Lesser of (column 1) and (column 2) $15,200

Year 1996: RRSP dollar limit $15,500; 18% of previous years' earned
income
Nil; Lesser of (column 1) and (column 2) Nil

Year 1995: RRSP dollar limit $14,500; 18% of previous years' earned
income
Nil; Lesser of (column 1) and (column 2) Nil

Year 1994: RRSP dollar limit $13,500; 18% of previous years' earned
income
$16,100; Lesser of (column 1) and (column 2) $13,500

Year 1993: RRSP dollar limit $12,500; 18% of previous years' earned
income
$14,000; Lesser of (column 1) and (column 2) $12,500

Year 1992: RRSP dollar limit $12,500; 18% of previous years' earned
income
$10,000; Lesser of (column 1) and (column 2) $10,000

(B) Total of column 3 from 1998 to 1992 = $60,100
(C) 7 over 2 of the RRSP dollar limit for the current year (1998) (7
divised
by 2 multiplied by $17,500)(see note 1 below) = $61,250
(D) Carryforward limit - Greater of (B) and (C) = $61,250

Unused RRSP deduction room at the end of the current year (1998) - Lesser
of
(A) and (D) $61,250

Note 1: The RRSP dollar limits for years after 1996 will be $15,500 as
adjusted, if necessary, to reflect increases in the average Canadian
wage. The
amounts shown as limits for the years 1997 and 1998 are for illustrative
purposes only.

In this example, the taxpayer's unused RRSP deduction room at the end of
1998
has been restricted to $61,250. This amount forms part of the taxpayer's
RRSP
deduction limit for 1999.

Persons Connected With Their Employers
17. Taxpayers may find their RRSP deduction limit reduced if they are or
were
connected with their employers after 1989 and, after 1990, joined their
employers' RPPs or recommenced to accrue lifetime retirement benefits
under a
defined benefit provision of their employers' RPPs. Subsection 8500(3) of
the
Regulations provides that a person is connected with an employer at any
time
if, at that time, the person:

a) owns, directly or indirectly, 10% or more of the issued shares of any
class
of the capital stock of the employer or of any other corporation that is
related to the employer;
b) does not deal at arm's length with the employer; or
c) is deemed, by paragraph (d) of the definition of "specified
shareholder" in
subsection 248(1), to be a specified shareholder of the employer.

In addition, subsection 8500(3) of the Regulations deems, for the purpose
of
determining whether or not a person is connected with an employer, a
person to
own shares of a corporation owned by:
- a person with whom the person does not deal at arm's length;
- a trust of which the person is a beneficiary, to the extent provided by
paragraph 8500(3)(e); or
- a partnership of which the person is a member, to the extent provided
by
paragraph 8500(3)(f).

Also, a person who has a contractual right to acquire shares of the
capital
stock of a corporation is deemed by paragraph 8500(3)(g) of the
Regulations to
own those shares if one of the main reasons for the existence of the
right may
reasonably be considered to be that the person not be connected with an
employer.

18. Subsection 8308(2) of the Regulations prescribes a reduction to a
taxpayer's RRSP deduction limit for a year if:

a) at any time in the year, the taxpayer becomes a member of the RPP or
lifetime retirement benefits begin to accrue to the taxpayer under a
defined
benefit provision of the RPP following a period in which lifetime
retirement
benefits did not accrue to the taxpayer;
b) the taxpayer is connected at that time, or was connected at any time
after
1989, with an employer who participates in the RPP for the benefit of the
taxpayer;
c) the taxpayer did not have a positive PA for 1990; and
d) subsection 8308(2) has not previously applied to prescribe an amount
for
the taxpayer.

19. The amount prescribed by subsection 8308(2) of the Regulations is
equal to
the lesser of:
a) 18% of the taxpayer's earned income for RRSP purposes for 1990; and
b) $11,500.

As indicated in 18 above, this amount reduces the taxpayer's RRSP
deduction
limit for a year. It also affects the taxpayer's unused RRSP deduction
room at
the end of a year (see 10 to 12 above) and the taxpayer's cumulative
excess
amount in respect of RRSPs at any time in a year (see 30 below). The
taxpayer's employer must file Form T1007, Connected Person Information
Return,
within 60 days after the taxpayer becomes a member of the RPP or
recommences
to accrue lifetime retirement benefits under a defined benefit provision
of
the RPP unless the employer has previously filed the information return
in
respect of the taxpayer.

20. The following example shows how the RRSP deduction limit of persons
connected with their employers is calculated. Assume that the taxpayer is
connected with his or her employer at the time the taxpayer joined the
employer's RPP in 1993. The taxpayer had earned income of $40,000 in 1990
and
$50,000 in 1992, unused RRSP deduction room at the end of 1992 of $1,000,
no
PA for 1990 and 1992, and no net PSPA for 1993.

Unused RRSP deduction room at the end of the immediately preceding year
(1992)
$1,000
plus: the amount, if any, by which the lesser of:
a) the RRSP dollar limit for the current year (1993), 12,500
and
b) 18% of earned income for the immediately preceding year (1992) (18%
multiplied by $50,000) = 9,000
exceeds
the prescribed amount which is equal to the lesser of:
c) 18% of earned income for 1990 (18% multiplied by $40,000), = 7,200
and
d) $11,500
Total $9,000 minus $7,200 = $1,800 (see note 1 below)
minus: the total of
e) Pas for the previous year (1992), and nil
f) net PSPA for the current year (1993) nil
RRSP deduction limit for the current year (1993) ($1,000 + $1,800) =
$2,800

Note 1: This amount cannot be negative. Therefore, in cases where the
prescribed amount exceeds the lesser of the RRSP dollar limit for the
current
year and 18% of earned income for the immediately preceding year, this
amount
is nil.

The taxpayer's RRSP deduction limit for 1993 is reduced by the prescribed
amount of $7,200 to $2,800. If the rule for connected persons had not
applied,
the taxpayer's RRSP deduction limit would be $10,000. Because this rule
can
apply only once in a taxpayer's lifetime, the taxpayer's RRSP deduction
limit
for subsequent years will not be affected by this rule.

Part-Year Residents and Non-Residents

21. For 1990 and subsequent years, the definition of "earned income" in
subsection 146(1) includes certain income and requires the deduction of
certain losses in its calculation in respect of a taxpayer for a period
in the
year throughout which the taxpayer was not resident in Canada for tax
purposes. The definition of earned income includes specific income earned
in
Canada in a period throughout which a taxpayer was not resident in Canada
except for any part of that income exempt from taxation in Canada by a
treaty
or an agreement with another country. The definition does not exclude any
losses from a business incurred in Canada during a period throughout
which a
taxpayer was a non-resident. This rule prevents a non-resident or a part-
year
resident from obtaining RRSP deduction room based on income not taxable
in
Canada. Form T1023, RRSP Deduction Limit - Calculation of Earned Income
for
19--, which is included in the income tax guide called RRSPs and Other
Registered Plans for Retirement, contains the calculation of earned
income for
non-resident individuals.

22. In computing the taxable income of a part-year resident pursuant to
section 114, the taxation year for the purpose of subsection 146(5) is
the
calendar year. Therefore, RRSP contributions made within 60 days after
the end
of the calendar year in which the taxpayer:
- ceased to be a resident of Canada,
- became a resident of Canada, or
- is taxable pursuant to section 115 of the Income Tax Act, are
deductible in
computing taxable income for that year to the extent permitted by
subsection
146(5).

Contributions to a Spousal RRSP

23. Contributions made by a taxpayer to an RRSP under which the
taxpayer's
spouse is the annuitant may be deducted, within specified limits, by the
taxpayer under subsection 146(5.1). In general terms, the maximum amount
that
a taxpayer may deduct under subsection 146(5.1) in computing income for a
year
after 1990 is limited to the lesser of:

a) the total of all contributions made by the taxpayer after 1990 and
within
60 days after the end of the year to the RRSP of the taxpayer's spouse,
to the
extent that the contributions were not deducted by the taxpayer in
computing
income for a previous year; and
b) the amount by which the taxpayer's "RRSP deduction limit" (see
paragraph 9)
for the year exceeds the amount deducted by the taxpayer under subsection
146(5) in computing the taxpayer's income for the year.

In order for the spousal contribution to be deductible under subsection
146(5.1), the taxpayer's spouse must be the annuitant of the spousal RRSP
at
the time the taxpayer makes the contribution. Because of the limitation
in (b)
above, the maximum amount that a taxpayer may deduct in any year after
1990
for contributions to the taxpayer's own RRSP and to an RRSP under which
the
taxpayer's spouse is the annuitant cannot exceed the taxpayer's "RRSP
deduction limit" for the year. Under paragraph 60(j.2), for the 1989 to
1994
taxation years, a taxpayer may be entitled to claim a deduction for the
transfer of up to $6,000 of periodic registered pension plan and deferred
profit sharing plan income to his or her spouse's RRSP, in the year that
the
payments are received and included in the taxpayer's income or within 60
days
after the end of that year. More details about the rules governing the
deductibility of spousal contributions, transfers under paragraph
60(j.2), and
the taxability of amounts paid out of spousal RRSPs are discussed in the
current version of IT-307, Spousal Registered Retirement Savings Plans.

Payment of Premium in Kind
24. Subsection 146(5) refers to the payment of premiums under the
taxpayer's
own RRSP, while subsection 146(5.1) refers to a payment under a spousal
RRSP.
Payment could include a contribution or transfer of property other than
cash
by the taxpayer. Such a contribution or transfer constitutes a
disposition of
property within the meaning of the definition of "disposition" in section
54.
The taxpayer is considered to have disposed of the property at the time
the
contribution or transfer of the property is made. The proceeds of
disposition
and the amount of premium considered to be paid are equal to the fair
market
value of the property transferred or contributed by the taxpayer at the
time
of its disposition. Any taxable capital gain arising on the disposition
is
required to be included in computing income. Any resultant capital loss,
however, is deemed to be nil for tax purposes by subparagraph
40(2)(g)(iv).

Deduction for Refund of Undeducted Contributions made after 1990

25. If all or any portion of the contributions made by a taxpayer after
1990
to RRSPs under which the taxpayer or the taxpayer's spouse is the
annuitant
have not been deducted in computing the taxpayer's income, the taxpayer
may
either keep the undeducted contributions in the plan and claim a
deduction for
them in a later year (see 5 above) or withdraw the undeducted
contributions
out of the plan on a tax-free basis by virtue of subsection 146(8.2). (It
should be noted that this bulletin uses the term "undeducted
contributions"
for the purpose of the subsection 146(8.2) deduction. This term differs
from
the term assigned to "undeducted RRSP premiums" in subsection 204.2(1.2)
for
the purpose of the Part X.1 tax as discussed in 30 below.)

26. Subject to the anti-avoidance rule mentioned in 28 below, subsection
146(8.2) provides an offsetting deduction for refunds of undeducted
contributions from RRSPs or RRIFs that are included in computing a
taxpayer's
income. It does not apply to:

a) a withdrawal prescribed by subsection 8307(6) of the Regulations,
which is
an amount withdrawn out of an RRSP to create room for past service
benefits
under an RPP;
b) for 1991 and later years, a withdrawal of RRSP contributions made by
direct
transfer from a DPSP in accordance with subsection 147(19);
c) for 1991, a withdrawal of RRSP contributions made by direct transfer
from a
RPP in accordance with any of subsections 147.3(1) and (4) to (7);
d) for 1992 and later years, a withdrawal of RRSP contributions made by
direct
transfer from an RPP and;
e) for 1992 and later years, a withdrawal of RRSP contributions made by
transfer from a prescribed provincial pension plan (in accordance with
paragraph 60(v)) in circumstances to which subsection 146(21) applies.

27. To qualify for the offsetting deduction under subsection 146(8.2),
the
withdrawal must have been made:

a) in the year in which the contributions were made by the taxpayer;
b) in the year in which the Notice of Assessment or Reassessment for the
year
of contribution was sent to the taxpayer; or
c) in the year immediately following either one of the years referred to
in
(a) and (b) above.

For example, if a taxpayer made an RRSP contribution in 1991 but did not
deduct it from income and the Notice of Assessment for 1991 was sent to
the
taxpayer in 1992, the taxpayer may claim the offsetting deduction under
subsection 146(8.2) if the taxpayer withdraws the undeducted contribution
in
1991, 1992 or 1993. Form T746, Calculation of Deduction for Refund of
RRSP
Excess Contributions, may be used to determine the offsetting deduction
permitted under subsection 146(8.2). Undeducted contributions may be
withdrawn
out of the plan without tax deducted at source if the taxpayer completes
Form
T3012A, Tax Deduction Waiver on a Refund of Undeducted RRSP Contributions
Made
in 19--, and has it duly approved by Revenue Canada. Both forms are
available
from your Revenue Canada taxation services office.

28. A deduction under subsection 146(8.2) for a refund of undeducted
contributions is not allowed when it is reasonable to consider that:

a) the taxpayer did not reasonably expect to be able to deduct the full
amount
of the contributions in the year in which the contributions were made or
in
the immediately preceding year; and
b) the taxpayer made all or part of the contributions with the intent of
later
withdrawing them and claiming a deduction for them under subsection
146(8.2).

29. Where a taxpayer has deducted an amount under subsection 146(8.2) for
a
refund of undeducted contributions, the contributions corresponding to
the
refund are deemed under subsection 146(8.21), for certain purposes, not
to
have been RRSP contributions made by the taxpayer to an RRSP. This rule
ensures that once a deduction under subsection 146(8.2) has been claimed
for a
year for a refund of undeducted contributions, the taxpayer cannot then
claim
a deduction under subsection 146(5) or (5.1) for any year for the same
contributions. Subsection 146(8.21) also applies for the purpose of the
attribution rules in subsections 146(8.3) and 146.3(5.1), which require
certain payments made to a taxpayer's spouse from the spouse's RRSPs or
RRIFs
to be included in the taxpayer's income. Therefore, where undeducted
contributions made by the taxpayer to his or her spouse's RRSP are later
withdrawn and deducted under subsection 146(8.2) by the taxpayer, the
contributions are deemed after the withdrawal not to be contributions
made by
the taxpayer to a spousal RRSP for the purpose of the attribution rules.

Part X.1 Tax on Excess Contributions made after 1990

30. If a taxpayer has made an excess contribution, the taxpayer may be
subject
to Part X.1 tax for the time the excess contribution remained in the
RRSP. For
excess contributions made after 1990, the tax payable by a taxpayer under
subsection 204.1(2.1) for any month after December 1990 is equal to 1% of
the
taxpayer's "cumulative excess amount" at the end of the month. The term
"cumulative excess amount" is defined in subsection 204.2(1.1).
Generally, the
cumulative excess amount of a taxpayer in respect of RRSPs at any time in
a
year is the amount, if any, by which

a) the taxpayer's "undeducted RRSP premiums" at that time, as defined in
subsection 204.2(1.2); exceeds
b) the total of:
- the taxpayer's RRSP deduction limit at that time for the year, as
determined
under subsection 204.2(1.1); and
- if the taxpayer was 18 years of age or older in the previous year,
$8,000,
otherwise, nil.
The calculation of the taxpayer's RRSP deduction limit in (b) is
essentially
the same as that provided for determining the taxpayer's RRSP deduction
limit
for the year under the definition of "RRSP deduction limit" in subsection
146(1) except that the net PSPA in this calculation depends on the
particular
time at which the taxpayer's RRSP deduction limit is calculated. (The
rules
for calculating the RRSP deduction limit are discussed in 8 to 16 above.
If
the special rule for persons connected with their employers applies,
refer to
17 to 20 above.)

For 1992 and subsequent years, subsection 204.2(1.2) provides that RRSP
contributions by way of a transfer from a prescribed provincial pension
plan,
(i.e. the Saskatchewan Pension Plan) in situations to which subsection
146(21)
applies, are not included in determining an individual's cumulative
excess
amount. Generally, subsection 146(21) allows for the direct tax-free
transfer
of lump sum amounts from prescribed provincial pension plans.

31. Plans that are registered after 1990 are required by paragraph
146(2)(c.1)
to permit the withdrawal of amounts by a taxpayer to reduce the amount of
tax
otherwise payable under Part X.1 by the taxpayer. In other words, RRSPs
are
not required to permit the withdrawals under subsection 146(8.2) except
where
tax under Part X.1 is otherwise payable. That is, a withdrawal can be
made by
a taxpayer out of his or her own RRSP as well as out of a spousal RRSP if
the
withdrawal reduces the Part X.1 tax otherwise payable by the taxpayer.
Pre-
1991 plans may be amended to contain this provision.

32. Since contributions can be made only to an unmatured plan, a
"cumulative
excess amount" can be created in a plan only before its maturity.
However, it
is possible to make a refund of such amounts after the plan has matured
and
been annuitized. This can be done by making a partial commutation of the
annuity with the cooperation of the issuer. Although there is no time
limit
for paying out the cumulative excess amount, any delay in making the
payment
would increase the amount of tax payable under Part X.1 and could
jeopardize
the deduction available under subsection 146(8.2). A deduction under
subsection 146(8.2) may be available if certain conditions are met (see
25 to
29), the commutation payment from the matured RRSP is received within a
specified time period, and the payment is from an RRSP in respect of the
undeducted contributions.If an excess was contributed to the plan and a
retirement income was acquired on maturity with the total contributions
(including the excess), without partial commutation as noted above, any
annuity payments received by the beneficiary would be fully taxable even
though only part of the contribution to the plan was deductible in
computing
income.

33. A taxpayer to whom the Part X.1 tax applies in the year is required
by
subsection 204.3(1) to file Form T1-OVP, Individual Income Tax Return for
Registered Retirement Savings Plan Excess Contributions, within 90 days
after
the end of the year and to pay the estimated tax payable at that time.
Form
T1-OVP is available from your Revenue Canada taxation services office.

34. Effective June 27, 1990, subsection 204.1(4) allows the Minister of
National Revenue to waive the Part X.1 tax where the cumulative excess
amount
arose because of a reasonable error and reasonable steps are being taken
to
remove the excess.

Recontribution to an RRSP

35. Effective for the 1991 and subsequent taxation years, subsection
146(6.1)
provides a special deduction for prescribed premiums (see 36 below) paid
to an
RRSP, other than those premiums that are designated for purposes of
paragraphs
60(j), (j.1) or (l). This provision allows a taxpayer to recontribute
certain
amounts which have been withdrawn by the taxpayer from an RRSP in order
to
create enough room for past service benefits under an RPP. The deduction
is
allowed in computing the taxpayer's income for the particular year in
which
the RRSP withdrawal was made rather than for the year in which the amount
was
recontributed. As a result, the deduction will offset the withdrawn
amount
included in income. Subsection 152(6), which provides for the
reassessment of
tax payable by a taxpayer for a taxation year under certain
circumstances,
gives the taxpayer the right to amend a return in order to claim the
deduction.

36. Subsection 8307(7) of the Regulations prescribes premiums for the
purpose
of subsection 146(6.1). A premium is prescribed for a particular taxation
year
if:

a) the taxpayer withdrew an amount in the year from an RRSP and
designated the
amount in accordance with subparagraph 8307(3)(a)(ii) for purposes of a
certification for past service benefits under an RPP;
b) it is later determined that the taxpayer withdrew too large an amount
because of a reasonable error, or did not need to withdraw any amount
because
the Minister has refused to register the pension plan under which the
benefits
are provided;
c) the premium is paid by the taxpayer within 12 months after it is
determined
that the taxpayer withdrew too large an amount;
d) the premium does not exceed the portion of the RRSP withdrawal that
was
withdrawn in error or was withdrawn unnecessarily;
e) the taxpayer files with the Minister of National Revenue, on or before
the
taxpayer's tax-filing deadline for the year in which the premium was paid
(generally April 30th of the following year), a written notice in which
the
premium is designated as a recontribution of the withdrawn amount; and
f) no other amount has been designated as a recontribution of the
withdrawn
amount.

Bankrupt Taxpayers

37. Beginning in 1991, special rules apply to ensure that the RRSP
deduction
limit and unused RRSP deduction room of a bankrupt taxpayer and the RRSP
excess contribution tax payable by such a taxpayer will be determined as
if
the taxpayer had not become bankrupt. First, the rule in paragraph
128(2)(d),
which divides the calendar year in which the taxpayer becomes bankrupt
into
two taxation years, does not apply for purposes of the definitions in
subsection 146(1) relating to RRSPs and the rules in Part X.1 of the Act
regarding the calculation of tax on excess contributions to RRSPs.
Second, for
purposes of computing the taxpayer's unused RRSP deduction room and the
Part
X.1 tax, where a bankrupt taxpayer has two taxation years in a calendar
year,
the amounts deducted by the taxpayer for each of the two years for
contributions to RRSPs will be treated as if they were deducted in
computing
the taxpayer's income for the calendar year. Finally, the maximum
deductions
that may be claimed by a bankrupt taxpayer under subsections 146(5) and
(5.1)
for RRSP contributions for the second taxation year (day of bankruptcy to
the
end of the calendar year) ending in the calendar year of bankruptcy are
reduced by the amount deducted by the taxpayer for the first taxation
year
(January 1 to the day before the bankruptcy) in that calendar year.

Glossary

Earned income: The rules for calculating a taxpayer's earned income for
RRSP
purposes are set out under the definition of "earned income" in
subsection
146(1). A taxpayer's RRSP deduction limit for a year is based on the
taxpayer's earned income for the immediately preceding year. Certain
rules
affecting the calculation of earned income for non-residents and part-
year
residents are discussed in 21 above. Form T1023, RRSP Deduction Limit -
Calculation of Earned Income for 19--, may be use to calculate earned
income.
This form is included in the income tax guide called RRSPs and Other
Registered Plans for Retirement and is also available from your Revenue
Canada
taxation services office.

Net past service pension adjustment (net PSPA): The term "net past
service
pension adjustment" is defined in subsection 146(1). This amount, which
can be
positive or negative, is the total of the taxpayer's PSPAs for the year
minus
the taxpayer's PSPA withdrawals that were designated for PSPAs certified
for
the year. A positive net PSPA for a year reduces the taxpayer's RRSP
deduction
limit for the year and the taxpayer's unused RRSP deduction room at the
end of
the year. Sections 8303 and 8304 of the Regulations contain the rules for
determining the PSPA of a taxpayer for a year in respect of an employer.
A
PSPA is, in general, the total of the additional pension credits that
would
have been determined for post-1989 past service if the RPP had provided
for
the upgraded benefits or additional period of pensionable service at the
time
each pension credit was first required to be determined, minus certain
amounts
transferred to the RPP to fund those benefits. The amount of a taxpayer's
PSPA
withdrawals is defined in subsection 8307(5) and can generally be
described as
the total of all amounts withdrawn from an RRSP to create additional room
to
accommodate a PSPA for past service benefits in a defined benefit RPP.
The
Plan Administrators Past Service Pension Adjustment Guide describes PSPAs
and
PSPA withdrawals in greater detail.

Note: The definition of "net past service pension adjustment" in
subsection
146(1) includes in a taxpayer's net PSPA any amounts prescribed by new
section
8308.4 of the Regulations which was included in the draft amendments to
the
Regulations released on December 18, 1992. This proposed new section
affects
taxpayers who accrue benefits under "government-sponsored retirement
arrangements." If new section 8308.4 of the Regulations is promulgated as
proposed, it will apply to 1994 and subsequent taxation years.

In addition, the draft Regulations include a proposal to amend the
definition
of PSPA in subsection 8303(1) to include additional amounts in the PSPAs
of
certain individuals who participate in foreign plans or specified
retirement
arrangements. If promulgated as proposed, this amendment to subsection
8303(1)
of the Regulations will apply to the determination of PSPAs for Fps for
1993
and subsequent taxation years and for SRAs for 1994 and subsequent
taxation
years. Proposed subsections 8308.4(1), 8308.1(1) and 8308.3(1) of the
draft
Regulations contain the definitions of "government-sponsored retirement
arrangement," "foreign plan," and "specified retirement arrangement,"
respectively.

Pension adjustment (PA): A taxpayer's RRSP deduction limit for a year is
reduced by the taxpayer's total Pas for all employers for the immediately
preceding year. The PA of a taxpayer for a year in respect of an employer
is
defined by subsection 8301(1) of the Regulations to mean the total of the
taxpayer's "pension credits" for the year in respect of the employer
under
DPSPs and under benefit provisions of RPPs. A pension credit is a measure
of
the benefits accruing to the taxpayer under a DPSP or under a benefit
provision of an RPP. Under subsection 8301(2), the pension credit under a
DPSP
is generally the total of contributions made to the plan by the employer
in
the year for the employee plus forfeitures reallocated to the employee.
For a
money purchase RPP, the pension credit is defined by subsection 8301(4)
and is
normally the total of the employer's and employee's contributions made in
the
year plus forfeitures reallocated to the employee. In the case of a
defined
benefit RPP, the pension credit is defined in subsection 8301(6) and is
generally determined directly from the plan benefit rate and, where
relevant,
the employee's pensionable earnings in the year. Subsections 8301(3), (8)
and
(9) contain special rules for determining pension credits when a taxpayer
terminates employment and the taxpayer is entitled only to a return of
employee contributions plus interest.

As part of the T4 reporting process, employers who sponsor RPPs or DPSPs
are
responsible for reporting each plan member's Pas. The information return
reporting the PA for a particular year must be filed by the end of
February of
the following year. In certain circumstances involving multi-employer
plans,
the plan administrator must report the PA on T4A slips. Generally, a
pension
plan is a "multi-employer plan," as defined in subsection 8500(1) of the
Regulations, if at the beginning of the year (or at the time the plan is
established, if later) it is reasonable to expect that no more than 95%
of the
active members at any time in the year will be employed by a single
employer
or by a group of related employers. The Employers Pension Adjustment
Calculation Guide contains more information on PAs.

Note: The draft Regulations released by the Minister of Finance on
December
18, 1992, include a proposal to amend subsection 8301(1). It is proposed
that
the definition of PA be amended to include additional amounts in the Pas
of
certain individuals who participate in foreign plans or specified
retirement
arrangements. If promulgated as proposed, subsection 8301(1) of the draft
Regulations will apply to the determination of Pas for Fps for 1992 and
subsequent taxation years and for SRAs for 1993 and subsequent taxation
years.
Proposed subsections 8308.1(1) and 8308.3(1) contain the definitions of
"foreign plan" and "specified retirement arrangement," respectively.

Premium: A "premium" is defined in subsection 146(1) as any amount paid
or
payable under an RRSP:
- as consideration for a contract (as specified in paragraph (a) of the
definition of "retirement savings plan" in subsection 146(1)) for a
retirement
income when the plan matures; or
- as a contribution or deposit (as specified in paragraph (b) of the
definition of "retirement savings plan" in subsection 146(1)).

After 1991, except for purposes of paragraph (b) of the definition
"benefit"
in subsection 146(1) and paragraph 146(2)(b.3), a premium does not
include a
payment designated under subsection 146.01(3) or a repayment described in
subparagraph (b)(ii) of the definition of "excluded withdrawal" in
subsection
146.01(1). (Amounts designated under subsection 146.01(3) are repayments
of
eligible amounts received pursuant to the Home Buyers' Plan. Repayments
described in the definition of "excluded withdrawal" are essentially
repayments of amounts that had been expected to become eligible amounts
when
withdrawn.)

RRSP deduction limit: After 1990, the maximum amount a taxpayer may
deduct for
RRSP contributions under subsection 146(5) is limited to the taxpayer's
RRSP
deduction limit for the year. See paragraph 8 of this bulletin for the
definition of "RRSP deduction limit."

RRSP dollar limit: The RRSP dollar limit for a calendar year is defined
under
"RRSP dollar limit" in subsection 146(1) as the money purchase limit for
the
immediately preceding calendar year. The term "money purchase limit" for
a
calendar year is defined in subsection 147.1(1).

The RRSP dollar limit for a calendar year is used to determine a
taxpayer's
RRSP deduction limit for that particular year (see 8 above). The RRSP
dollar
limit for the years 1991 to 1996 inclusive is as follows:

Year   and RRSP dollar limit
1991   - $11,500
1992   - $12,500
1993   - $12,500
1994   - $13,500
1995 - $14,500
1996 - $15,500

The RRSP dollar limit for years after 1996 will be $15,500 adjusted to
take
into account increases in the average Canadian wage.

Spouse: Before 1993, for the purpose of making contributions that are
deductible under subsection 146(5.1), the spouse of a taxpayer was a
person to
whom the taxpayer was legally married. After 1992, the meaning of the
term
"spouse" has been extended by subsection 252(4) to include the person of
the
opposite sex who is cohabiting with the taxpayer at the time in a
conjugal
relationship and:
- has so cohabited with the taxpayer throughout a twelve-month period
ending
before that time; or
- is a parent of a child of whom the taxpayer is a parent.

If the taxpayer and the person have cohabited in a conjugal relationship,
at
any later time, they are considered to be so cohabiting except for any
period
of separation of 90 days or more because of a breakdown of their conjugal
relationship.

In addition, for 1993 and subsequent years, if two individuals are
considered
to be spouses because they are parents of the same child, they will be so
considered only if they are the natural or adoptive parents of that
child.

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, ONTARIO K1A 0L8

Explanation of Changes for Interpretation Bulletin IT-124R6 -
Contributions to
Registered Retirement Savings Plans

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-124R6 deals with the deductibility of
contributions
to registered retirement savings plans (RRSPs). The revision to IT-124R5
was
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). IT-
124R5
was also revised to reflect a number of amendments to the Income Tax Act
by
S.C. 1986, c. 55 (former Bill C-23), by S.C. 1986, c. 6 (former Bill C-
84), by
S.C. 1991, c. 49 (former Bill C-18), by S.C. 1993, c. 24 (former Bill C-
92)
and by S.C. 1994, c. 21 (former Bill C-27).

The comments in this bulletin are affected by several of the proposed
amendments contained in the December 18, 1992 draft Regulations. These
proposed amendments are reflected in notes at the end of paragraphs 5, 7,
8,
26 and following the explanations of "net past service pension
adjustment,"
and "pension adjustment" in the Glossary. In addition, a proposed
amendment in
Bill C-59, relating to the Home Buyers' Plan, is reflected in a note at
the
end of paragraph 7.

The contents of this bulletin are not affected by the amendments to the
Income
Tax Act by S.C. 1994, c. 8 (former Bill C-9) or the Draft Amendments to
the
Income Tax Regulations released on April 5, 1994.

Legislative and Other Changes

New paragraph 1 explains, in general terms, the amendments made by Bill
C-52
to subsection 146(5). This paragraph also includes an example to
illustrate
how the RRSP deduction limit is calculated.

New paragraphs 2 and 3 provide general comments on who may make
contributions
to an RRSP and when such contributions may be made.

Paragraph 4 (replaces former paragraph 2) was revised to reflect a Bill
C-18
amendment to subsection 18(11). This amendment clarifies that no
deduction is
allowed for interest expense incurred to purchase income- producing
property
after the property is transferred to an RRSP. This paragraph was also
revised
to clarify that only reasonable administration fees paid by an individual
to
the trustee of his or her own RRSP are deductible by the individual. In
addition, comments relating to the deduction under paragraph 20(1)(bb)
for
investment counselling fees were added. Finally, paragraph 4 reflects a
Bill
C-92 amendment to paragraph 18(11)(b). The effect of the amendment is to
preclude a deduction for interest on money borrowed to make repayments of
amounts withdrawn under the Home Buyers' Plan.

New paragraphs 5 to 7 (replace former paragraphs 3 to 5 and 8) explain in
detail the Bill C-52 amendments to subsection 146(5). Paragraph 5 also
outlines the Bill C-27 amendments to subsection 146(5).

Former paragraphs 6 and 7, which discussed how an individual's RRSP limit
was
affected by contributions made by the individual to his or her registered
pension plan (RPP), were deleted. After 1990, an individual's RRSP
deduction
limit for a year is reduced by the individual's pension adjustments (Pas)
for
the immediately preceding year.

New paragraph 7 (replaces former paragraph 1) lists the various
provisions in
the Act which allow a deduction for a transfer of pension and similar
payments
to RRSPs. One such provision is section 60.01, which was added by Bill C-
18.
Paragraph 7 also refers to paragraph 60(l)(v) which was amended by Bill
C-18
to permit a rollover of payments from a prescribed provincial pension
plan
received as a result of the death of the taxpayer's spouse. New paragraph
7
also explains a Bill C-27 amendment to paragraph 60(l) so that certain
RRSP
premiums will not be deductible under subsection 146(5) in computing
income
for the year. These include all or any portions of premiums that were
designated as a transfer under paragraph 60(l).

A note at the end of paragraph 7 reflects a proposed amendment to
paragraph
146(5)(a), contained in Bill C-59, which relates to the Home Buyers'
Plan.
New paragraphs 8 and 9 explain the Pension Reform rules for calculating
an
individual's RRSP deduction limit for a year.

The note at the end of new paragraph 8 explains some of the proposed
changes
in the December 18, 1992 draft Regulations. These proposed changes, which
relate to "government-sponsored retirement arrangements," "foreign
plans," and
"specified retirement arrangements," may affect an individual's PA or
PSPA,
and the calculation of an individual's RRSP deduction limit for a year.

New paragraphs 10 to 16 discuss in detail the carryforward component in
the
calculation of the RRSP deduction limit. The term "unused RRSP deduction
room"
is defined in subsection 146(1), which was added by Bill C-52. These
paragraphs explain that where the amount a taxpayer deducts for RRSP
contributions for a year is less than the taxpayer's RRSP deduction limit
for
the year, the unused RRSP deduction room is generally carried forward and
forms part of the taxpayer's RRSP deduction limit for the following year.
The
example in paragraph 16 reflects the amendment to the RRSP dollar limit
under
Bill C-92.

Former paragraphs 11 to 16 were deleted because they dealt with the
transfer
of a taxable capital gain from the disposition of a qualified farm
property to
an RRSP under subsections 146(5.3), (5.4) and (5.5) as a result of the
introduction of the capital gains deduction.

New paragraphs 17 to 20 outline the provisions of new section 8500(3) of
the
Regulations. These paragraphs explain the special rule for certain
individuals
who are "connected" with their employers after 1989 and who, after 1990,
became members of the employer's RPP or recommenced to accrue lifetime
retirement benefits under the RPP.

Former paragraphs 17 to 22 dealt with the transfer of pension and similar
payments to RRSPs and the transfer of funds between plans. These
paragraphs
were deleted as the subject matter will be covered in a separate
bulletin.

Paragraphs 21 and 22 (replace former paragraph 9) deal with the effect of
the
Bill C-52 amendment to the definition of "earned income" on part-year
residents and non-residents.
Paragraph 23 (replaces former paragraph 10) was revised to reflect the
Bill C-
52 amendments dealing with spousal RRSP contributions.

Paragraph 24 (replaces former paragraph 23), deals with the payment of
premiums in kind.

Former paragraph 28, which explained the tax implications arising from
excess
contributions made before 1991, was deleted and replaced with new
paragraphs
25, 26, 27 and 28. These new paragraphs reflect the Bill C-52 amendments
to
the deduction allowed under subsection 146(8.2) for a refund of
undeducted
contributions. The amendments, which include the addition of an anti-
avoidance
rule to deny the deduction in certain circumstances, apply to
contributions
made after 1990. New paragraph 26 also reflects a Bill C-92 amendment
which
provides that subsection 146(8.2) will not apply to certain withdrawals
of
RRSP contributions made by direct transfer from an RPP to an RRSP or a
registered retirement income fund (RRIF). Paragraph 26 reflects a Bill C-
27
amendment to subsection 146(8.2), which ensures that this subsection will
not
apply to a withdrawal of RRSP contributions made by transfer from a
provincial
plan prescribed for the purposes of paragraph 60(v) in circumstances
where
subsection 146(21) applies.

Former paragraphs 29 and 30, which contained highlights of the 1985
budget
proposals affecting RRSP contributions, were deleted as the comments are
no
longer relevant.

New paragraph 29 discusses the provisions of subsection 146(8.21) which
was
added by Bill C-52. Under subsection 146(8.21), contributions
corresponding to
a refund of undeducted contributions under subsection 146(8.2) are
generally
deemed not to be contributions.

New paragraph 30 discusses the computation of the Part X.1 penalty on
excess
contributions made after 1990. Paragraph 30 replaces the comments in
former
paragraphs 25 and 26 dealing with the calculation of the Part X.1 penalty
on
excess contributions made before 1991. Paragraph 30 reflects subsection
204.2(1.1) which was added by Bill C-52 to define the meaning of the term
"cumulative excess amount" in respect of RRSPs. Paragraph 30 also
outlines the
Bill C-27 amendment to subsection 204.2(1.2) to exclude from the
calculation
of "cumulative excess amount" any RRSP contributions from a prescribed
provincial plan (meaning Saskatchewan Pension Plan) in situations to
which
subsection 146(21) applies.

Paragraph 31 (replaces former paragraph 24) has been revised to reflect
the
Bill C-52 amendment to paragraph 146(2)(c.1). Specifically, plans
registered
after 1990 must permit the withdrawal of amounts to reduce the amount of
tax
otherwise payable under Part X.1.

Paragraph 32 (replaces comments in former paragraph 26) reflects the Bill
C-23
amendments to paragraphs 146(2)(a) and (b). The effect of these
amendments is
to permit partial withdrawals to be made out of an unmatured RRSP without
causing deregistration and to permit a refund of excess contributions out
of a
matured RRSP without causing deregistration.

Paragraph 33 (replaces former paragraph 27) deals with the form T1-OVP.

New paragraph 34 sets out the rule in subsection 204.1(4), which was
added by
Bill C-52. Subsection 204.1(4) permits the Minister to waive the Part X.1
tax
in certain circumstances.

New paragraphs 35 and 36 deal with the provisions of subsection 146(6.1)
which
was added by Bill C-52. This subsection provides a special deduction for
prescribed premiums paid to an RRSP.

New paragraph 37 discusses the special rules that apply to ensure the
RRSP
deduction limit and unused RRSP deduction room of a bankrupt individual
and
the Part X.1 tax payable by such an individual will be determined as if
the
individual had not become bankrupt.

A Glossary has been added at the end of the bulletin to provide an
explanation
of certain terms used throughout the bulletin. The explanations of the
terms
"net past service pension adjustment," "premium," "RRSP deduction limit,"
"RRSP dollar limit," and "spouse" reflect amendments under Bill C-92. The
definition of the term "spouse" also reflects a Bill C-27 amendment. The
note
at the end of the definitions of the terms "net past service pension
adjustment" and "pension adjustment" reflects the applicable proposed
amendments contained in the December 18, 1992 draft Regulations.