Westcoast Watch!

Edition WW-P4

 

August 15, 2003

 

 

Current Service Contribution

For A Connected Person

 

The Registered Plans Directorate of Canada Customs and Revenue Agency has issued a new guideline on how company current service contributions (“CSC”) should be made to a defined benefit registered pension plan on behalf of a connected person.  A connected person is defined in the Income Tax Regulations as a person directly or indirectly owning 10% or more of any class of company shares or not dealing at arms length with such person.

 

The new guideline requires ongoing CSC for a connected person to be made based on a percentage of the member’s pensionable earnings (T-4 earnings) rather than a fixed amount.  This is consistent with the fact that the amount of pension benefits earned by a connected person is based on the person’s pensionable earnings for the year.  The higher the pensionable earnings, the more the pension benefits earned by the member and thus the higher the amount of contributions required.

 

Starting with 2003, our actuarial valuation reports will express the CSC for a connected person as a percentage of earnings up to a specific dollar amount each year.  The percentage would apply to all three years covered by the report.

 

Example:   Our January 1, 2003 valuation report stipulates that the CSC for the member is 23.5% of earnings up to the following maximum dollar amounts:

 

2003

$      20,212

2004

$      21,728

2005

$      23,358

 

The following table summarizes the CSC at various levels of T-4 income for 2003:

 

T-4 Income

CSC at 23.5%

Maximum $ Amount

Actual CSC

$70,000

$16,450

$20,212

$16,450

$80,000

$18,800

$20,212

$18,800

$90,000

$21,150

$20,212

$20,212

 

Contributions for 2004 and 2005 should be made based on 23.5% of the member’s T-4 income up to a maximum of $21,728 and $23,358 respectively.

 

 

This WESTCOAST WATCH! publication is for information purposes only.  Every effort has been made to ensure the accuracy of the information provided herein.  However, no person or firm involved in the preparation or distribution of this bulletin accepts any liability for its contents or use.