The federal government has released a package of draft legislative proposals for the Income Tax Act and Income Tax Regulations regarding pooled registered pension plans (PRPPs). The proposed tax rules will apply to both federally and provincially regulated PRPPs and will operate alongside the Pooled Registered Pension Plans Act.

Interested parties may submit comments on the proposed changes until Feb. 14, 2012.

Details of some of the key proposed tax rules are outlined below.

  • No employer-employee relationship will be required for participation in a PRPP. This will permit employees whose employer has no involvement with a plan, as well as self-employed individuals, to participate.
  • Contributions made by employers, employees and self-employed individuals will generally be deductible for tax purposes. Contributions made by a PRPP member will be limited to the member’s available RRSP contribution limit for the year.
  • Annual employer contributions will be limited to a maximum of the RRSP dollar limit for the year, unless the employee directs the employer to contribute more than this amount.
  • Employers’ contributions to an employee’s PRPP will be excluded from salaried compensation. Immediate vesting of employer PRPP contributions will be required. There will be no requirement for an employer to make a minimum contribution to a PRPP.
  • Since PRPP contributions will be made under a member’s available RRSP limit, there will be no requirement for an employer to report pension adjustments in respect of employer and employee contributions, as is required in respect of employer and employee contributions to an RPP.
  • There will be no “qualified investment” rules for PRPPs. However, some general rules will apply to ensure that investments are diversified and do not present risks of self-dealing. PRPP administrators will be required to avoid acquiring investments in which a member has a significant interest and to avoid concentrating more than 10% of plan assets in a particular business.
  • The existing transfer rules for defined contribution RPPs, with some exceptions, will apply to a PRPP.
  • Pension payment or decumulation options will be limited to those currently available to defined contribution RPPs.

The backgrounder document containing full details of the amendments is available on the Department of Finance website.

Comments are to be sent via email to PRPPtaxrules-RPACreglesfiscales@fin.gc.ca, or to Tax Policy Branch,
Department of Finance,
140 O’Connor Street,
Ottawa, Ontario,
K1A 0G5.

Copyright © 2020 Transcontinental Media G.P. Originally published on benefitscanada.com

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