Income Tax Regulations (C.R.C., c. 945)

Periods of Reduced Pay

Prescribed Compensation

• 8507 (1) For the purposes of paragraph (b) of the definition compensation in subsection 147.1(1) of the Act, there is prescribed for inclusion in the compensation of an individual from an employer for a calendar year after 1990

  • (a) where the individual has a qualifying period in the year with respect to the employer, the amount that is determined under subsection (2) in respect of the period; and

  • (b) where the individual has a period of disability in the year, the amount that would be determined under paragraph (2)(a) in respect of the period if the period were a qualifying period of the individual with respect to the employer.

Additional Compensation in respect of Qualifying Period

• (2) For the purposes of paragraph (1)(a) and subsection (5), the amount that is determined in respect of a period in a calendar year that is a qualifying period of an individual with respect to an employer is the lesser of

  • (a) the amount, if any, by which

    • (i) the amount that it is reasonable to consider would have been the remuneration of the individual for the period from the employer if the individual had rendered services to the employer throughout the period on a regular basis (having regard to the services rendered by the individual to the employer before the complete period of reduced pay of which the period is a part) and the individual’s rate of remuneration had been commensurate with the individual’s rate of remuneration before the beginning of the complete period of reduced pay

    exceeds

    • (ii) the remuneration of the individual for the period from the employer, and

  • (b) the amount determined by the formula

    (5 + A + B - C) × D

    where

    A

    is the lesser of 3 and the amount that would be the cumulative additional compensation fraction of the individual with respect to the employer, determined to the time that is immediately before the end of the period, if the individual’s only qualifying periods had been periods that are also periods of parenting,

    B

    is

    • (i) if no part of the period is a period of parenting, nil, and

    • (ii) otherwise, the lesser of

      • (A) the amount, if any, by which 3 exceeds the amount determined for A, and

      • (B) the ratio of

        • (I) the amount that would be determined under paragraph (a) if the remuneration referred to in subparagraphs (a)(i) and (ii) were the remuneration for such part of the period as is a period of parenting

        to

        • (II) the amount determined for D,

    C

    is the cumulative additional compensation fraction of the individual with respect to the employer, determined to the time that is immediately before the end of the period, and

    D

    is the amount that it is reasonable to consider would have been the individual’s remuneration for the year from the employer if the individual had rendered services to the employer on a full-time basis throughout the year and the individual’s rate of remuneration had been commensurate with the individual’s rate of remuneration before the beginning of the complete period of reduced pay of which the period is a part.

Qualifying Periods and Periods of Parenting

• (3) For the purposes of this section,

  • (a) a period in a calendar year is a qualifying period of an individual in the year with respect to an employer if

    • (i) the period is an eligible period of reduced pay or temporary absence of the individual in the year with respect to the employer,

    • (ii) either

      • (A) lifetime retirement benefits are provided to the individual under a defined benefit provision of a registered pension plan (other than a plan that is, in the year, a specified multi-employer plan) in respect of the period, or

      • (B) contributions are made by or on behalf of the individual under a money purchase provision of a registered pension plan (other than a plan that is, in the year, a specified multi-employer plan) in respect of the period,

      pursuant to terms of the plan that apply in respect of periods that are not regular periods of employment,

    • (iii) the lifetime retirement benefits or the contributions, as the case may be, exceed the benefits that would otherwise be provided or the contributions that would otherwise be made if the benefits or contributions were based on the services actually rendered by the individual and the remuneration actually received by the individual,

    • (iv) the individual’s pension adjustment for the year with respect to the employer includes an amount in respect of the lifetime retirement benefits or the contributions, as the case may be,

    • (v) no benefits are provided in respect of the period to the individual under a defined benefit provision of any registered pension plan in which the employer does not participate,

    • (vi) no contributions are made by or on behalf of the individual in respect of the period under a money purchase provision of a registered pension plan or a deferred profit sharing plan in which the employer does not participate, and

    • (vii) no part of the period is after the earlier of

      • (A) the time at which bridging benefits commence to be paid to the individual in circumstances to which subsection 8503(17) applied, and

      • (B) the earliest day in respect of which benefits have been provided to the individual in circumstances to which subsection 8503(19) applied; and

  • (b) a period of parenting of an individual is all or a part of a period that begins

    • (i) at the time of the birth of a child of whom the individual is a natural parent, or

    • (ii) at the time the individual adopts a child,

    and ends 12 months after that time.

Cumulative Additional Compensation Fraction

• (4) For the purposes of this section, the cumulative additional compensation fraction of an individual with respect to an employer, determined to any time, is the aggregate of all amounts each of which is the additional compensation fraction that is associated with a period that ends at or before that time and that is a qualifying period of the individual in a calendar year after 1990 with respect to

  • (a) the employer;

  • (b) any other employer who does not deal at arm’s length with the employer; or

  • (c) any other employer who participates in a registered pension plan in which the employer participates for the benefit of the individual.

Additional Compensation Fraction

• (5) For the purposes of subsection (4), the additional compensation fraction associated with a qualifying period of an individual in a calendar year with respect to a particular employer is the amount determined by the formula

  E / D

  where

  D

  is the amount that is determined for D under paragraph (2)(b) in respect of the qualifying period, and

  E

  is

  • (a) if

    • (i) all or a part of the qualifying period is a period throughout which the individual renders services to another employer pursuant to an arrangement in respect of which subsection 8308(7) is applicable,

    • (ii) the particular employer is a lending employer for the purposes of subsection 8308(7) as it applies in respect of the arrangement, and

    • (iii) the particular employer and the other employer deal with each other at arm’s length,

    the amount that would be determined under subsection (2) in respect of the qualifying period if, in the determination of the amount under paragraph (2)(a), no remuneration were included in respect of the portion of the qualifying period referred to in subparagraph (a)(i), and

  • (b) otherwise, the amount that is determined under subsection (2) in respect of the qualifying period.

Exclusion of Subperiods

• (6) A reference in this section to a qualifying period of an individual in a calendar year with respect to an employer or to a period of disability of an individual in a calendar year does not include a period that is part of a longer such period.

Complete Period of Reduced Pay

• (7) In subsection (2), complete period of reduced pay of an individual with respect to an employer means a period that consists of one or more periods each of which is

  • (a) a period of disability of the individual, or

  • (b) an eligible period of reduced pay or temporary absence of the individual with respect to the employer,

  and that is not part of a longer such period.

Salary Deferral Leave Plan

8508 Where an employee and an employer enter into an arrangement in writing described in paragraph 6801(a) or (b),

• (a) the period throughout which the employee defers salary or wages pursuant to the arrangement shall be deemed to be an eligible period of reduced pay of the employee with respect to the employer; and

• (b) for the purposes of section 8507, the amount that it is reasonable to consider would have been the remuneration of the employee for any period from the employer shall be determined on the basis that the employee’s rate of remuneration was the amount that it is reasonable to consider would, but for the arrangement, have been the employee’s rate of remuneration.

Transition Rules

Prescribed Conditions Applicable Before 1992 to Grandfathered Plan

• 8509 (1) The prescribed conditions for the registration of a grandfathered plan are, before 1992,

  • (a) the condition set out in paragraph 8502(a),

  • (b) the condition set out in paragraph 8502(c), but only in respect of benefits provided under a money purchase provision of the plan, and

  • (c) if the plan contains a money purchase provision, the condition set out in paragraph 8506(2)(a),

  and the following conditions:

  • (d) the benefits provided under each defined benefit provision of the plan are acceptable to the Minister and, for the purposes of this condition, any benefits in respect of periods before 1991 that become provided after 1988 with respect to a member who is connected with an employer who participates in the plan, or was so connected at any time before the benefits become provided, shall, unless the Minister is notified in writing that the benefits are provided with respect to the member, be deemed to be unacceptable to the Minister, and

  • (e) the plan contains such terms as may be required by the Minister.

Conditions Applicable after 1991 to Benefits under Grandfathered Plan

• (2) For the purpose of the condition in paragraph 8502(c) as it applies after 1991 in respect of a grandfathered plan,

  • (a) the condition in subparagraph 8503(2)(b)(ii) is replaced by the condition that the amount of bridging benefits payable to a member for a particular month does not exceed the amount that is determined in respect of the month by the formula

    (A × C × (E / F)) + (G × (1 - (E / F)))

    where

    A

    is the amount determined for A under subparagraph 8503(2)(b)(ii) with respect to the member for the month,

    C

    is the amount determined for C under subparagraph 8503(2)(b)(ii) with respect to the member for the month,

    E

    is the aggregate of all amounts each of which is the duration (measured in years, including any fraction of a year) of a period ending before 1992 that is pensionable service of the member under the provision,

    F

    is the aggregate of all amounts each of which is the duration (measured in years, including any fraction of a year) of a period that is pensionable service of the member under the provision, and

    G

    is the amount determined with respect to the member for the month by the formula set out in subparagraph 8503(2)(b)(ii);

  • (b) the conditions in paragraphs 8503(3)(c), (h) and (i) and 8504(1)(a) and (b) apply only in respect of lifetime retirement benefits provided in respect of periods after 1991; and

  • (c) for the purposes of the conditions in paragraphs 8504(1)(a) and (b),

    • (i) the aggregate that is determined under subparagraph 8504(1)(a)(i) does not include an amount in respect of 1991, and

    • (ii) the amount that is determined for G under subparagraph 8504(1)(a)(ii) is based only on periods of pensionable service after 1991.

Additional Prescribed Condition for Grandfathered Plan after 1991

• (3) The prescribed conditions for the registration of a grandfathered plan include, after 1991, the condition that all benefits provided under each defined benefit provision of the plan in respect of periods before 1992 are acceptable to the Minister.

Defined Benefits under Grandfathered Plan Exempt from Conditions

• (4) The Minister may, after 1991, exempt from the condition in paragraph 8502(c) the following benefits provided under a defined benefit provision of a grandfathered plan:

  • (a) benefits that are payable after the death of a member, to the extent that the benefits can reasonably be considered to relate to lifetime retirement benefits provided to the member in respect of periods before 1992; and

  • (b) bridging benefits in excess of bridging benefits that are permissible under paragraph 8503(2)(b), to the extent that the excess bridging benefits are vested in a member on December 31, 1991.

Benefits under Grandfathered Plan — Pre-1992 Disability

• (4.1) Where benefits are provided under a defined benefit provision of a grandfathered plan to a member of the plan as a consequence of the member having become, before 1992, physically or mentally impaired, the following rules apply:

  • (a) the conditions in this Part (other than the condition in paragraph (b)) do not apply in respect of the benefits;

  • (b) the prescribed conditions for the registration of the plan include the condition that the benefits are acceptable to the Minister; and

  • (c) subsections 147.1(8) and (9) of the Act do not apply to render the plan a revocable plan where those subsections would not so apply if the member’s pension credits under the provision were determined without regard to the benefits.

Conditions Not Applicable to Grandfathered Plan

• (5) Where a pension plan is a grandfathered plan,

  • (a) the conditions referred to in paragraph 8501(2)(b) do not apply before 1992 in respect of the plan;

  • (b) the condition in paragraph 8502(d) does not apply in respect of distributions that are made before 1992 under a defined benefit provision of the plan; and

  • (c) the conditions in paragraphs 8503(3)(a) and (b) do not apply in respect of benefits provided under a defined benefit provision of the plan in respect of periods before 1992.

PA Limits for Grandfathered Plan for 1991

• (6) Subsections 147.1(8) and (9) of the Act do not apply in respect of a grandfathered plan for a calendar year before 1992 if

  • (a) the plan does not contain a money purchase provision in that year; or

  • (b) no contributions are made in respect of that year under the money purchase provisions of the plan.

Limit on Pre-Age 65 Benefits

• (7) Where a pension plan is a grandfathered plan or would be a grandfathered plan if the references to “March 27, 1988” in the definitions existing plan and grandfathered plan in subsection 8500(1) were read as references to “June 7, 1990” and the references to “March 28, 1988” in the definition existing plan in that subsection were read as references to “June 8, 1990”,

  • (a) the conditions in paragraphs 8504(5)(a) and (b) apply only in respect of retirement benefits provided in respect of periods after 1991; and

  • (b) the amounts that are determined for B and D under paragraph 8504(5)(a) are based only on periods of pensionable service after 1991.

Benefit Accrual Rate Greater than 2 Per Cent

• (8) Where a pension plan is a grandfathered plan or would be a grandfathered plan if the references to “March 27, 1988” in the definitions existing plan and grandfathered plan in subsection 8500(1) were read as references to “July 31, 1991” and the references to “March 28, 1988” in the definition existing plan in that subsection were read as references to “August 1, 1991”,

  • (a) the condition in paragraph 8503(3)(g) applies only in respect of lifetime retirement benefits provided under a defined benefit provision of the plan in respect of periods after 1994; and

  • (b) subparagraph 8503(3)(h)(iv) is not applicable in respect of lifetime retirement benefits provided under a defined benefit provision of the plan to a member unless the formula for determining the amount of the member’s lifetime retirement benefits complies with the condition in paragraph 8503(3)(g) as that condition would, but for this subsection, apply.

Benefits under Plan other than Grandfathered Plan

• (9) The following rules apply in respect of the benefits provided under a defined benefit provision of a pension plan that is not a grandfathered plan:

  • (a) the condition in paragraph 8502(c) does not apply in respect of benefits provided with respect to an individual

    • (i) to whom retirement benefits have commenced to be paid under the provision before 1992, or

    • (ii) who has died before 1992; and

  • (b) the prescribed conditions for the registration of the plan include the condition that all benefits referred to in paragraph (a) are acceptable to the Minister.

Money Purchase Benefits Exempt from Conditions

• (10) The Minister may exempt from the condition in paragraph 8502(c) all or a portion of the benefits provided under a money purchase provision of a pension plan with respect to a member that may reasonably be considered to derive from contributions made before 1992 under a money purchase provision of a registered pension plan.

Stipulation Not Required for Pre-1992 Plans

• (10.1) The conditions in paragraphs 8503(4)(c) and 8506(2)(d) do not apply in respect of a pension plan

  • (a) that was a registered pension plan on December 31, 1991,

  • (b) in respect of which an application for registration was made to the Minister before 1992, or

  • (c) that was established to provide benefits to one or more individuals in lieu of benefits to which the individuals were entitled under another pension plan that is a plan described in paragraph (a) or (b) or this paragraph, whether or not benefits are also provided to other individuals.

Benefits Acceptable to Minister

• (11) For greater certainty, where benefits under a defined benefit provision of a pension plan are, by reason of paragraph 8503(3)(e) or subsection (3), subject to the condition that they be acceptable to the Minister, the provisions of this section shall not be considered to limit in any way the requirements that may be imposed by the Minister in respect of the benefits.

PA Limits — 1996 to 2002

• (12) Neither subsection 147.1(8) nor (9) of the Act applies to render a registered pension plan a revocable plan at the end of any calendar year after 1995 and before 2003 solely because a pension adjustment, a total of pension adjustments or a total of pension credits of an individual for the year (each of which is, in this subsection, referred to as a “test amount”) is excessive where the subsection would not apply to render the plan a revocable plan at the end of the year if each test amount were decreased by the lesser of

  • (a) the amount, if any, by which the lesser of

    • (i) the total of all amounts each of which is

      • (A) a pension credit under a defined benefit provision of a registered pension plan that is included in determining the test amount, or

      • (B) a pension credit under a money purchase provision of a registered pension plan or under a deferred profit sharing plan that is included in determining the test amount and that is taken into account, under paragraph 8302(2)(c), in determining a pension credit referred to in clause (A), and

    • (ii) $15,500

    exceeds the money purchase limit for the year, and

  • (b) the total of all amounts each of which is a pension credit referred to in clause (a)(i)(A).

Maximum Benefits Indexed Before 2005

• (13) Where

  • (a) a pension plan is a grandfathered plan or would be a grandfathered plan if the references to “March 27, 1988” in the definitions existing plan and grandfathered plan in subsection 8500(1) were read as references to “March 5, 1996” and the references to “March 28, 1988” in the definition existing plan in that subsection were read as references to “March 6, 1996”,

  • (b) under the terms of the plan as they read immediately before March 6, 1996, the plan provided for benefits that are benefits to which a condition in any of subsections 8504(1), (5) and (6) and paragraph 8505(3)(d) applies and, at that time, the benefits complied with the condition, and

  • (c) as a consequence of the change in the defined benefit limit effective March 6, 1996, the benefits would, if this Part were read without reference to this subsection, cease to comply with the condition,

  the following rules apply:

  • (d) for the purpose of determining at any time after March 5, 1996 and before 1998 whether the benefits comply with the condition, the defined benefit limit for each year after 1995 is deemed to be the amount that it would be if the definition money purchase limit in subsection 147.1(1) of the Act were applied as it read on December 31, 1995, and

  • (e) for the purpose of determining at any time after 1997 whether the benefits comply with the condition, the defined benefit limit for 1996 and 1997 is deemed to be the amount that it would be if it were determined in accordance with paragraph (d).