Canadian Tax Adviser
December 20, 2011

New Tax Legislation for Pooled Registered Pension Plan 

Paul Hickey
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 fully operational.

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.

Employer contributions
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).

GST/HST implications
The 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.

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