Canadian Tax Adviser
December 20, 2011
New Tax Legislation for Pooled Registered Pension
Toronto, National Tax Centre
Finance introduced draft legislation for the tax implications of the Pooled
Registered Pension Plan (PRPP) framework on December 14, 2011. These tax
rules were promised when the PRPP framework was introduced in Bill C-25 on
November 17, 2011. The PRPP regime is specifically aimed at small
businesses, and allows individuals who currently do not participate in an
employer-sponsored pension plan, such as the self-employed and employees of
companies that do not offer a pension plan, to use this new option. Finance
is accepting comments on the draft legislation, which applies to both
federally and provincially regulated PRPPs, until February 14, 2012.
Note that provincial legislation is still needed to make the PRPP framework
Who can participate?
Under the proposed tax rules, employees whose employer has no involvement
with a plan and self-employed individuals can participate in a PRPP. PRPP
contributions will be limited to the member's available Registered
Retirement Savings Plan (RRSP) contribution limit for the year, and will be
deemed to be premiums made under an RRSP.
While employers may make PRPP contributions, they are not required to make a
minimum contribution on behalf of their employees. Any employer
contributions made in the year, or within 120 days after the end of the year
for periods ending before the year, will be deductible to the employer under
proposed subsection 147.5(10).
The proposed rules limit an employer’s annual contributions to an employee’s
PRPP to a maximum of the RRSP dollar
limit for the year, unless the employee directs the employer to contribute
more than this amount. This limit is intended to help prevent a PRPP member
from possibly over-contributing. Employers will not be required to report
pension adjustments for employer and employee contributions.
Investment restrictions of PRPP
General rules will apply to ensure that investments are reasonably
diversified and do not present risks of self-dealing. A PRPP will generally
need to take reasonable precautions to avoid concentrating more than 10% of
its assets in a particular business (or non-arm’s-length group of
businesses). In addition, the PRPP will be required to avoid intentionally
acquiring "restricted investments", which are investments in which a member
has a "significant interest" (i.e., not less than a 10% ownership interest),
as defined in proposed subsection 147.5(1).
Excise Tax Act will also be amended to ensure that PRPPs are
treated as investment plans for GST/HST purposes.
Also, PRPPs with members resident in an HST province and in at least
one other province would generally determine their liability for the
provincial component of the HST under the special attribution method for
selected listed financial institutions.
For more information, contact your KPMG adviser.