Go Back  British Expats > Living & Moving Abroad > Canada
Reload this Page >

Pay Pension Commencement Lump sum into RRSP -defer tax & additional contribution room

Pay Pension Commencement Lump sum into RRSP -defer tax & additional contribution room

Old Feb 20th 2018, 6:11 pm
  #1  
Just Joined
Thread Starter
 
Joined: Apr 2013
Posts: 4
Prof is an unknown quantity at this point
Default Pay Pension Commencement Lump sum into RRSP -defer tax & additional contribution room

My husband has a Defined Benefit Pension in the UK and has a contractual pension age of 60. We had planned to only start drawing the pension from age 65 when he retires. However, he has been informed by the UK scheme that as a deferred member he has to take his pension from 60 and can not postpone drawing it until 65. As a higher rate tax payer this will increase our Canadian tax bill. We do not want to transfer the whole pension pot to another pension scheme as we can’t find comparable annuity rates.

We would like to take the pension commencement lump sum (25% of total pension pot) and invest that into another pension/savings scheme and defer tax liability until the proceeds are actually drawn in retirement at 65. Then we would just have to pay tax on the regular monthly pension payments. Is it possible to pay this money into an RRSP without using our RRSP room (i.e. as an indirect transfer)?

The following tax interpretations would indicate that it is possible to do so:“The CRA's general views regarding the transfer of amounts from non-registered pension plans to Canadian registered plans are found in Interpretation Bulletin IT-528, Transfers of Funds Between Registered Plans. Paragraph 26 of IT-528 discusses the application of subparagraph 60(j)(i) of the Act which allows a special deduction for a pension benefit received by an individual from a non-registered pension plan, such as a foreign pension plan, that is transferred to a registered pension plan ("RPP") or a RRSP. Since you are not contemplating a transfer to an RPP, we will restrict our general comments to transfers to RRSPs.

The following conditions have to be satisfied for an individual to deduct an amount under subparagraph 60(j)(i) of the Act in computing their income for a taxation year:
• The foreign plan must constitute a superannuation or pension plan for purposes of the Act. The determination of whether a plan is a superannuation or pension plan is a question of fact. Generally, a plan will be considered to be a superannuation or pension plan where contributions have been made to the plan by or on behalf of an employer or former employer of an employee in consideration for services rendered by the employee and the contributions are used to provide an annuity or other periodic payment on or after the employee's retirement.

• The pension benefit must not be part of a series of periodic payments. Only lump-sum payments are eligible for the deduction. A lump-sum payment that represents a settlement of future entitlements under the pension plan, such as a full or partial commutation of pension benefits, would be eligible for the deduction. However, where a lump-sum payment does not represent a settlement of future entitlements under the pension plan, such as a payment of periodic pension payments in arrears or a payment of a retroactive adjustment on the periodic pension payments, that lump-sum payment will be considered part of the series of periodic payments and therefore will not be eligible for the deduction.

• The pension benefit must be attributable to services rendered by the individual (or the individual's spouse or common-law partner) to an employer in a period throughout which the individual was not resident in Canada.

• The pension benefit must be included in the individual's income for the year and not exempt from tax in Canada because of an income tax treaty. In this regard, the Act provides for pension benefits to be included in the recipient's income in the year received and the Canada-UK Income Tax Convention does not limit Canada's right to tax pension payments received from a UK pension plan by a Canadian resident.

The individual must make the RRSP contribution in the year the pension benefit is received or within 60 days after the end of that year. There is no requirement that the RRSP contribution be made by way of a direct transfer from the foreign pension plan. In addition, the individual must designate the RRSP contribution as a transfer in their personal income tax return for the year. The amount of the deduction is limited to the lesser of the amount designated and the amount of the benefit included in income. The deduction is over and above an individual's regular RRSP deduction limit.”
We believe our pension from the Universities Superannuation Scheme meets the definition of a Superannuation pension, that the pension commencement lump sum is not a series of periodic payments and so provided we pay the lump sum into an RRSP within the same tax year we can defer our tax liability.

- Can anyone confirm that our understanding is correct?

- Have there been any changes to the tax laws that would no longer permit this?

- Would the RRSP have to be in my husband’s name to qualify?

- Are there any other options to achieve the same tax deferral?
Prof is offline  
Old Feb 20th 2018, 8:26 pm
  #2  
BE Enthusiast
 
Joined: Dec 2016
Location: Yorkville, Toronto. From Bournemouth UK
Posts: 316
glendem4 has a reputation beyond reputeglendem4 has a reputation beyond reputeglendem4 has a reputation beyond reputeglendem4 has a reputation beyond reputeglendem4 has a reputation beyond reputeglendem4 has a reputation beyond reputeglendem4 has a reputation beyond reputeglendem4 has a reputation beyond reputeglendem4 has a reputation beyond reputeglendem4 has a reputation beyond reputeglendem4 has a reputation beyond repute
Default Re: Pay Pension Commencement Lump sum into RRSP -defer tax & additional contribution

There are no QROPS Qualified Retirement Overseas Pension Schemes currently available in Canada to transfer pensions from the UK to Canada. I will be transferring my UK SIPP (Defined Contribution) into an income drawdown account with Hargreaves Lansdown before I move to Canada permanently so that I can access 25% tax free lump sum.
glendem4 is offline  
Old Feb 20th 2018, 9:28 pm
  #3  
 
Joined: Sep 2008
Posts: 12,830
Aviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond repute
Default Re: Pay Pension Commencement Lump sum into RRSP -defer tax & additional contribution

Originally Posted by glendem4 View Post
so that I can access 25% tax free lump sum.
Which is likley to be taxed in Canada.
Aviator is offline  
Old Feb 20th 2018, 9:31 pm
  #4  
 
Joined: Sep 2008
Posts: 12,830
Aviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond repute
Default Re: Pay Pension Commencement Lump sum into RRSP -defer tax & additional contribution

What you want to do may not now be possible. This is the place for chatting over ideas, not a substitute for professional advice, some circumstances professional advice is advisable. I would suggest meeting with an accountant locally to look into your situation.
Aviator is offline  
Old Feb 21st 2018, 5:00 am
  #5  
BE Enthusiast
 
Joined: Dec 2016
Location: Yorkville, Toronto. From Bournemouth UK
Posts: 316
glendem4 has a reputation beyond reputeglendem4 has a reputation beyond reputeglendem4 has a reputation beyond reputeglendem4 has a reputation beyond reputeglendem4 has a reputation beyond reputeglendem4 has a reputation beyond reputeglendem4 has a reputation beyond reputeglendem4 has a reputation beyond reputeglendem4 has a reputation beyond reputeglendem4 has a reputation beyond reputeglendem4 has a reputation beyond repute
Default Re: Pay Pension Commencement Lump sum into RRSP -defer tax & additional contribution

Originally Posted by Aviator View Post
Which is likley to be taxed in Canada.
Not if you take your tax free lump sum BEFORE you move to Canada
glendem4 is offline  
Old Feb 21st 2018, 12:06 pm
  #6  
Just Joined
Thread Starter
 
Joined: Apr 2013
Posts: 4
Prof is an unknown quantity at this point
Default Re: Pay Pension Commencement Lump sum into RRSP -defer tax & additional contribution

We are already in Canada and not looking to transfer the pension, but looking to invest the pension commencement lump sum when we have to start drawing the pension. We will talk to a local accountant.
Prof is offline  
Old Feb 21st 2018, 4:05 pm
  #7  
 
Joined: Sep 2008
Posts: 12,830
Aviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond repute
Default Re: Pay Pension Commencement Lump sum into RRSP -defer tax & additional contribution

Originally Posted by glendem4 View Post
Not if you take your tax free lump sum BEFORE you move to Canada
That is correct for those that are not tax residents of Canada.

In some circumstances for folks that have started the move, been here, set some things up and then moved back to the UK. They may be considered tax resident, even if they currently do not reside in Canada and it may be taxable in Canada.

Taking funds out of a pension from overseas, even if it is reinvested, is likley to be considered income and therefore taxable in Canada.

Last edited by Aviator; Feb 21st 2018 at 4:10 pm.
Aviator is offline  
Old Feb 27th 2018, 6:15 pm
  #8  
Seasoned Maritimer
 
Tangram's Avatar
 
Joined: Jun 2005
Location: Fredericton, New Brunswick CA
Posts: 8,227
Tangram has a reputation beyond reputeTangram has a reputation beyond reputeTangram has a reputation beyond reputeTangram has a reputation beyond reputeTangram has a reputation beyond reputeTangram has a reputation beyond reputeTangram has a reputation beyond reputeTangram has a reputation beyond reputeTangram has a reputation beyond reputeTangram has a reputation beyond reputeTangram has a reputation beyond repute
Default Re: Pay Pension Commencement Lump sum into RRSP -defer tax & additional contribution

Didn't think defined benefit schemes received lump sums, the 25% cash option was generally from defined contribution schemes ( Personal Pension Plans ). Have things changed now ?

Edit: Allegedly some allow it, who knew.

Last edited by Tangram; Feb 27th 2018 at 6:49 pm.
Tangram is offline  
Old Feb 27th 2018, 10:02 pm
  #9  
Just Joined
Thread Starter
 
Joined: Apr 2013
Posts: 4
Prof is an unknown quantity at this point
Default Re: Pay Pension Commencement Lump sum into RRSP -defer tax & additional contribution

Our defined benefit plan does allow it.

I have checked with a tax consultant and it seems it is possible to pay the lump sum into an RRSP, provided that all the conditions in my original post are met. This means that although the lump sum is treated as income, the RRSP payment is offset against it.
Prof is offline  
Old Feb 27th 2018, 10:53 pm
  #10  
 
Joined: Sep 2008
Posts: 12,830
Aviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond reputeAviator has a reputation beyond repute
Default Re: Pay Pension Commencement Lump sum into RRSP -defer tax & additional contribution

Originally Posted by Prof View Post
Our defined benefit plan does allow it.

I have checked with a tax consultant and it seems it is possible to pay the lump sum into an RRSP, provided that all the conditions in my original post are met. This means that although the lump sum is treated as income, the RRSP payment is offset against it.
If there is room in your RRSP to allow further contribution, any income can be deposited. It is likley this is treated no differently to to any other income. It is likley it will use the RRSP room, as you state, it is treated as income.
Aviator is offline  
Old Jul 27th 2018, 8:06 pm
  #11  
Just Joined
 
Joined: Jul 2018
Posts: 3
MMMaple has a reputation beyond reputeMMMaple has a reputation beyond reputeMMMaple has a reputation beyond reputeMMMaple has a reputation beyond reputeMMMaple has a reputation beyond reputeMMMaple has a reputation beyond reputeMMMaple has a reputation beyond reputeMMMaple has a reputation beyond reputeMMMaple has a reputation beyond reputeMMMaple has a reputation beyond reputeMMMaple has a reputation beyond repute
Default Re: Pay Pension Commencement Lump sum into RRSP -defer tax & additional contribution

Originally Posted by Prof View Post
Our defined benefit plan does allow it.

I have checked with a tax consultant and it seems it is possible to pay the lump sum into an RRSP, provided that all the conditions in my original post are met. This means that although the lump sum is treated as income, the RRSP payment is offset against it.
Yes, we also checked with a international tax consultant and they said the same as above.
MMMaple is offline  
Old Jul 27th 2018, 8:45 pm
  #12  
MODERATOR
 
Siouxie's Avatar
 
Joined: Apr 2009
Location: SW Ontario
Posts: 18,053
Siouxie has a reputation beyond reputeSiouxie has a reputation beyond reputeSiouxie has a reputation beyond reputeSiouxie has a reputation beyond reputeSiouxie has a reputation beyond reputeSiouxie has a reputation beyond reputeSiouxie has a reputation beyond reputeSiouxie has a reputation beyond reputeSiouxie has a reputation beyond reputeSiouxie has a reputation beyond reputeSiouxie has a reputation beyond repute
Default Re: Pay Pension Commencement Lump sum into RRSP -defer tax & additional contribution

Originally Posted by MMMaple View Post
Yes, we also checked with a international tax consultant and they said the same as above.

Do check with a Canadian tax accountant before setting anything in motion and preferably ask them for the specific legislation and reference from Revenue Canada ( and get it in writing)!
Siouxie is offline  
Old Aug 3rd 2018, 8:40 pm
  #13  
Just Joined
 
Joined: Jul 2018
Posts: 3
MMMaple has a reputation beyond reputeMMMaple has a reputation beyond reputeMMMaple has a reputation beyond reputeMMMaple has a reputation beyond reputeMMMaple has a reputation beyond reputeMMMaple has a reputation beyond reputeMMMaple has a reputation beyond reputeMMMaple has a reputation beyond reputeMMMaple has a reputation beyond reputeMMMaple has a reputation beyond reputeMMMaple has a reputation beyond repute
Default Re: Pay Pension Commencement Lump sum into RRSP -defer tax & additional contribution

Yes, thank you, I will do that. And thank you for the suggestion for a written reference - will ask for that too.
MMMaple is offline  

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Contact Us - Archive - Advertising - Cookie Policy - Privacy Statement - Terms of Service - Do Not Sell My Personal Information -

Copyright © 2018 MH Sub I, LLC dba Internet Brands. All rights reserved. Use of this site indicates your consent to the Terms of Use.