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Annex 2
Draft Legislation and Explanatory Notes:
Reduced 2008 Minimum Withdrawal Amount in respect of Registered Retirement Income Funds and Variable Benefits under a Registered Pension Plan

Draft Legislation

  1. (1) The Income Tax Act is amended by adding the following after section 60.02:

Additions to clause 60(l)(v)(B.2) for 2008

  60.021 (1) In determining the amount that may be deducted because of paragraph 60(l) in computing a taxpayer’s income for the 2008 taxation year, clause 60(l)(v)(B.2) shall be read as follows:

"(B.2) the total of all amounts each of which is

(I) the taxpayer’s eligible amount (within the meaning assigned by subsection 146.3(6.11)) for the year in respect of a registered retirement income fund,

(II) the taxpayer’s eligible RRIF withdrawal amount (within the meaning assigned by subsection 60.021(2)) for the year in respect of a registered retirement income fund, or

(III) the taxpayer’s eligible variable benefit withdrawal amount (within the meaning assigned by subsection 60.021(3)) for the year in respect of an account of the taxpayer under a money purchase provision of a registered pension plan,"

Meaning of eligible RRIF withdrawal amount

  (2) A taxpayer’s eligible RRIF withdrawal amount for a taxation year in respect of a registered retirement income fund under which the taxpayer is the annuitant at the beginning of the taxation year is

(a) except where paragraph (b) applies, the amount determined by the formula

A – B

where

A is the lesser of

(i) the total of all amounts included, because of subsection 146.3(5), in computing the income of the taxpayer for the taxation year in respect of amounts received out of or under the fund (other than an amount paid by direct transfer from the fund to another fund or to a registered retirement savings plan), and

(ii) the amount that would, in the absence of subsection 146.3(1.1), be the minimum amount under the fund for the taxation year, and

B is the minimum amount under the fund for the taxation year; and

(b) if the taxpayer attained 70 years of age in 2007, nil.

Meaning of eligible variable benefit withdrawal amount

  (3) A taxpayer’s eligible variable benefit withdrawal amount for a taxation year in respect of an account of the taxpayer under a money purchase provision of a registered pension plan is the amount determined by the formula

A – B – C

where

A is the lesser of

(a) the total of all amounts each of which is the amount of a retirement benefit (other than a retirement benefit permissible under any of paragraphs 8506(1)(a) to (e) of the Regulations) paid from the plan in the taxation year in respect of the account and included, because of paragraph 56(1)(a), in computing the taxpayer’s income for the taxation year; and

(b) the amount that would, in the absence of paragraph 8506(7)(b) of the Regulations, be the minimum amount for the account for the taxation year,

B is the minimum amount for the account for the taxation year, and

C is the total of all contributions made by the taxpayer under the provision and designated for the purposes of subsection 8506(10) of the Regulations.

  (2) If this Act is assented to after January 30, 2009, amounts paid by a taxpayer, to a registered retirement savings plan or registered retirement income fund under which the taxpayer is the annuitant, during the period that begins on March 2, 2009 and that ends on the day that is 30 days after the day on which this Act is assented to, are deemed for the purpose of paragraph 60(l) of the Income Tax Act to have been made on March 1, 2009, and not when they were actually made, except that the amounts so deemed shall not exceed the total of all amounts each of which is

(a) the taxpayer’s eligible RRIF withdrawal amount for 2008 in respect of a registered retirement income fund, or

(b) the taxpayer’s eligible variable benefit withdrawal amount for 2008 in respect of an account of the taxpayer under a money purchase provision of a registered pension plan.

  2. Section 146.3 of the Act is amended by adding the following after subsection (1):

Adjusted minimum amount for 2008

  (1.1) The minimum amount under a retirement income fund for 2008 is 75 per cent of the amount that would, in the absence of this subsection, be the minimum amount under the fund for the year.

Exceptions

  (1.2) Subsection (1.1) does not apply to a retirement income fund

(a) for the purposes of subsections (5.1) and 153(1) and the definition "periodic pension payment" in section 5 of the Income Tax Conventions Interpretation Act, nor

(b) if the individual who was the annuitant under the fund on January 1, 2008 attained 70 years of age in 2007.

  3. (1) Subsection 8506(7) of the Income Tax Regulations and the heading before it are replaced by the following:

Special rules for minimum amount

  (7) The minimum amount for a member’s account under a money purchase provision of a registered pension plan for a calendar year is

(a) nil, if an individual who is either the member or the specified beneficiary of the member for the year in relation to the provision

(i) is alive at the beginning of the year, and

(ii) had not attained 71 years of age at the end of the preceding calendar year; and

(b) if paragraph (a) does not apply and the year is 2008, 75 per cent of the amount that would, in the absence of this subsection, be the minimum amount for the account for the year.

  (2) Section 8506 of the Regulations is amended by adding the following after subsection (8):

Re-contribution — adjusted minimum amount for 2008

  (9) If a contribution made by a member of a registered pension plan and credited to the member’s account under a money purchase provision of the plan complies with the conditions in subsection (10), the contribution

(a) is deemed to have been made in accordance with the plan as registered;

(b) is to be disregarded for the purposes of paragraph (2)(c.1); and

(c) is deemed to be an excluded contribution for the purposes of paragraph 8301(4)(a).

Conditions referred to in subsection (9)

  (10) The conditions referred to in subsection (9) are as follows:

(a) the contribution is made in 2008 or within 60 days after the end of 2008 (or within such longer period after the end of the year as is acceptable to the Minister);

(b) the contribution is designated for the purposes of this subsection in a manner acceptable to the Minister; and

(c) the amount of the contribution does not exceed the amount determined by the formula

A – B – C

where

A is the lesser of

(i) the total of all amounts each of which is the amount of a retirement benefit (other than a retirement benefit permissible under any of paragraphs (1)(a) to (e)) paid from the plan in 2008 in respect of the account and included, because of paragraph 56(1)(a) of the Act, in computing the taxpayer’s income for the taxation year; and

(ii) the amount that would, in the absence of paragraph (7)(b), be the minimum amount for the account for 2008,

B is the minimum amount for the account for 2008, and

C is the total of all other contributions made by the member under the money purchase provision at or before the time of the contribution and designated for the purposes of this subsection.

  (3) If this Act is assented to after January 30, 2009, contributions made by a member of a registered pension plan, and credited to the member’s account under a money purchase provision of the plan, during the period that begins on March 2, 2009 and that ends on the day that is 30 days after the day on which this Act is assented to, are deemed for the purpose of subsection 8506(10) of the Income Tax Regulations, as enacted by subsection (2), to have been made on March 1, 2009, and not when they were actually made, except that the amounts so deemed shall not exceed the amount that would be determined in respect of the account under paragraph 8506(10)(c) of those Regulations, as enacted by subsection (2), if the value of C in the formula in that paragraph were nil.

Explanatory Notes

Clause 1

RRIF and variable benefit minimum amount rules – re-contributions

ITA
60.021

New section 60.021 of the Income Tax Act (the Act) provides rules related to the 25% reduction, for 2008, in the minimum withdrawal amounts required under registered retirement income funds (RRIFs) and variable benefit money purchase registered pension plans (RPPs), as provided for in new subsection 146.3(1.1) of the Act and paragraph 8506(7)(b) of the Income Tax Regulations. The variable benefit rules allow money purchase benefits under an RPP to be provided in the same manner as is permitted under a RRIF, as an alternative to the acquisition of an annuity.

In particular, new section 60.021 provides a deduction for certain 2008 RRIF withdrawals and variable benefit payments that are re-contributed.

ITA
60.021(1)

New subsection 60.021(1) of the Act specifies a special reading of clause 60(l)(v)(B.2) of the Act for 2008. Paragraph 60(l) allows an individual to claim a deduction for qualifying payments to a registered retirement savings plan (RRSP), RRIF or RPP, to offset certain income inclusions, up to the limit set out in subparagraph 60(l)(v). Existing clause 60(l)(v)(B.2) includes for this purpose certain amounts received from a RRIF. Although payments to a RRIF by the annuitant are not generally permitted, subparagraph 146.3(2)(f)(iii) of the Act allows such payments to the extent that they are described in subparagraph 60(l)(v).

New subsection 60.021(1) provides that, for 2008, clause 60(l)(v)(B.2) is to be read as allowing the individual’s eligible RRIF withdrawal amounts and eligible variable benefit withdrawal amounts for the year within the meaning assigned by new subsections 60.021(2) and (3) to be included in the amount determined under that clause. For further detail, readers may refer to the commentary on new subsections 60.021(2) and (3) below.

If the legislation implementing these new measures receives Royal Assent after January 30, 2009, re-contributions made after March 1, 2009 and on or before the day that is 30 days after the legislation implementing these measures receives Royal Assent will be deemed to have been made on March 1, 2009. In effect, this means that re-contributions made pursuant to these new rules will be permitted until the later of March 1, 2009 and 30 days after the legislation implementing these measures receives Royal Assent.

ITA
60.021(2)

New subsection 60.021(2) of the Act describes a taxpayer’s eligible RRIF withdrawal amount for a taxation year in respect of a RRIF under which the taxpayer is the annuitant at the beginning of the taxation year. This provision is relevant for the 2008 taxation year.

In most cases, the taxpayer’s eligible RRIF withdrawal amount is determined, under paragraph 60.021(2)(a), by the formula

A – B

Variable A is the lesser of two amounts. The first amount is the total amounts received in 2008 out of or under the RRIF (other than as a transfer) and included, because of subsection 146.3(5), in computing the taxpayer’s income. The second amount is the minimum amount for the RRIF for 2008, determined without reference to the 25% reduction provided for in new subsection 146.3(1.1).

Variable B is the minimum amount under the RRIF for 2008, determined after taking into account the 25% reduction provided for in new subsection 146.3(1.1).

New paragraph 60.021(2)(b) will, however, apply instead of paragraph (a) for taxpayers who turned 70 years of age in 2007. New paragraph 60.021(2)(b) relates to the change in the RRIF conversion age from 69 years to 71 years introduced in Budget 2007. For taxpayers who turned 70 years of age in 2007, this provision ensures that the effect of the Budget 2007 measures, which reduced the minimum amount for 2008 to nil for such taxpayers and allowed for the re-contribution of excess withdrawals, are preserved.

ITA
60.021(3)

New subsection 60.021(3) of the Act describes a taxpayer’s eligible variable benefit withdrawal amount in respect of an account of the taxpayer under a money purchase provision of an RPP. This provision is relevant for the 2008 taxation year.

The taxpayer’s eligible variable benefit withdrawal amount is determined by the formula

A – B – C

Variable A is the lesser of two amounts. The first amount is, in general terms, the total variable benefit payments received in 2008 from the account and included, because of paragraph 56(1)(a), in computing the taxpayer’s income. The second amount is the minimum amount for the account for 2008, determined without reference to the 25% reduction provided for new paragraph 8506(7)(b) of the Income Tax Regulations (the Regulations).

Variable B is the minimum amount for the account for 2008, determined after taking into account the 25% reduction provided for in new paragraph 8506(7)(b) of the Regulations.

Variable C is the portion of the taxpayer’s excess variable benefit payments under the money purchase provision that have already been re-contributed and designated for this purpose under new subsection 8506(10) of the Regulations. Variable C in effect prevents the taxpayer from re-contributing an excess variable benefit payment to an RRSP or RRIF to the extent that the taxpayer has already re-contributed the amount to the money purchase account.

These amendments apply on Royal Assent.

Clause 2

RRIF minimum amount

ITA
146.3

Section 146.3 of the Act contains the rules governing registered retirement income funds (RRIFs).

ITA
146.3(1.1)

Section 146.3 requires that payments be made each year from a RRIF that are not less than the minimum amount for the RRIF for the year. The minimum amount is defined in subsection 146.3(1), and is generally the fair market value of the fund’s assets at the beginning of the year multiplied by an age-based factor set out in the Income Tax Regulations.

New subsection 146.3(1.1) provides that the minimum amount for a RRIF for 2008 is reduced by 25%.

ITA
146.3(1.2)

New subsection 146.3(1.2) provides that the unreduced minimum amount for 2008 (i.e. before applying the 25% reduction provided for by new subsection 146.3(1.1)) continues to apply for certain limited relieving purposes. Specifically, the unreduced minimum amount will apply for the purposes of

  • the exemption from withholding tax on RRIF withdrawals up to the minimum amount;
  • the spousal attribution rules; and
  • non-resident withholding taxes.

These amendments apply on Royal Assent.

Clause 3

Variable benefit minimum amount

ITR
8506

Section 8506 of the Income Tax Regulations (the Regulations) contains rules that apply to benefits provided under a money purchase provision of a registered pension plan (RPP).

ITR
8506(7)

Paragraph 8506(1)(e.1) of the Regulations permits an RPP to provide, as an alternative to the acquisition of an annuity, retirement benefits to a member under a money purchase provision in the same manner as is permitted under a registered retirement income fund (RRIF). These benefits are referred to as "variable benefits".

The amount of variable benefits payable each year from a member’s account must not be less than the minimum amount determined in accordance with the rules set out in subsections 8506(5) to (7) of the Regulations. Subsections 8506(5) and (6) provide rules for determining the minimum amount that are similar to the RRIF minimum amount rules. Subsection 8506(7) currently provides an overriding rule that sets the minimum amount at nil for calendar years that end before the member turns 72 years of age.

Subsection 8506(7) is amended to move the existing rule into new paragraph (a), and to provide, in new paragraph (b), that the minimum amount for 2008 is reduced by 25%, consistent with the 25% reduction in the RRIF minimum amount for 2008, as provided for in new subsection 146.3(1.1) of the Income Tax Act (the Act).

This amendment applies on Royal Assent.

ITR
8506(9) and (10)

New subsections 8506(9) and (10) of the Regulations provide rules to allow for the re-contribution of certain variable benefit payments to an RPP in cases where a member has received, in 2008, more than the reduced minimum amount.

New subsection 8506(9) contains provisions that apply to contributions that meet the conditions described in new subsection 8506(10).

  • Paragraph 8506(9)(a) deems the contributions to have been made in accordance with the plan as registered, allowing the member to deduct them.
  • Paragraph 8506(9)(b) provides for the contributions to be disregarded for the purposes of paragraph 8506(2)(c.1) of the Regulations. That paragraph generally prohibits money purchase contributions after the member turns 71 years of age.
  • Paragraph 8506(9)(c) deems the contributions to be excluded contributions for the purposes of paragraph 8301(4)(a) of the Regulations, thus ensuring that they do not give rise to a pension adjustment amount for the member.

New subsection 8506(10) sets out three conditions that a contribution must satisfy for subsection 8506(9) to apply.

First, the contribution must be made in 2008 or within 60 days after the end of 2008 (or within such longer period after the end of the year as is acceptable to the Minister). For this purpose, if the legislation implementing these new measures receives Royal Assent after January 30, 2009, re-contributions made after March 1, 2009 and on or before the day that is 30 days after the legislation implementing these measures receives Royal Assent will be deemed to have been made on March 1, 2009. In effect, this means that re-contributions made pursuant to these new rules will be permitted until the later of March 1, 2009 and 30 days after the legislation implementing these measures receives Royal Assent.

Second, the contribution must be designated for this purpose in a manner acceptable to the Minister.

Finally, the amount of the contribution must not exceed the amount determined by the formula

A – B – C

Variable A is the lesser of two amounts. The first amount is, in general terms, the total variable benefit payments received in 2008 from the account and included, because of paragraph 56(1)(a) of the Act in computing the member’s income. The second amount is the minimum amount for the account for 2008, determined without reference to the 25% reduction provided for in new paragraph 8506(7)(b) of the Regulations.

Variable B is the minimum amount for the account for 2008, determined after taking into account the 25% reduction provided for in new paragraph 8506(7)(b) of the Regulations.

Variable C is the portion of the member’s excess variable benefit payments under the money purchase provision that have already been re-contributed and designated for this purpose under this subsection.

These amendments apply on Royal Assent.

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