Canada: 2019 Federal Budget: Key Provisions Affecting Pensions, Benefits And Executive Compensation


The 2019 Budget proposes to introduce legislative amendments to the Companies' Creditors Arrangement Act, the Bankruptcy and Insolvency Act, the Canada Business Corporations Act, and the Pension Benefits Standards Act, 1985 in an effort to address recent concerns regarding the security of workplace pensions in situations of corporate insolvency.

The proposed measures would make insolvency proceedings "fairer, more transparent and more accessible for pensioners and workers." The 2019 Budget states that this will be accomplished in part by requiring all parties to act in good faith and by giving courts greater ability to review payments made to executives in the lead up to insolvency.

Under the proposed measures, the 2019 Budget states that "it will be made clear that federally incorporated businesses are able to consider diverse interests, such as those of workers and pensioners in corporate-decision making" and publicly traded, federally incorporated firms will also be required to disclose their policies pertaining to workers and pensions and executive compensation, or explain why such policies are not in place. These firms will also have to hold and disclose the results of non-binding shareholder votes on executive compensation.

With respect to pensions, the 2019 Budget states that the proposed measures will clarify that if a plan is wound-up, it must still provide the same pension benefits as when it was ongoing. In addition, defined benefit plans will be permitted to fully transfer the responsibility to provide pensions to a regulated life insurance company through the purchase of annuities. Presumably this means that there will finally be a full discharge on buy-out annuity purchases for federally regulated pension plans.


Currently, under the Income Tax Act, employee stock options are given preferential personal income tax treatment in the form of a stock option deduction, which effectively results in the benefit being taxed at the same rate as capital gains. The 2019 Budget proposes to limit the use of the current employee stock option tax regime. A C$200,000 annual cap on employee stock option grants (based on the fair market value of the underlying shares) that may receive tax-preferred treatment will be imposed for employees of "large, long-established, mature firms." Start-ups and rapidly growing Canadian businesses would be unaffected by this cap. Further details regarding this measure will be released before the summer of 2019. The federal government has advised that any changes would apply on a go-forward basis only and would not apply to employee stock options granted prior to the announcement of legislative proposals to implement any new regime.


The 2019 Budget proposes to introduce legislative amendments to the Bank Act, the Bank of Canada Act, the Trust and Loan Companies Act, and the Pension Benefits Standards Act, 1985 to expand the scope of the unclaimed assets framework to include foreign denominated bank accounts and unclaimed pension balances from terminated federally regulated pension plans.


The 2019 Budget proposes for 2020 and subsequent taxation years to permit two new types of annuities under the tax rules for certain registered plans:

Advanced Life Deferred Annuity

An advanced life deferred annuity (ALDA) will be a life annuity, the commencement of which may be deferred until the end of the year, in which the annuitant attains 85 years of age (the current tax rules generally require that an annuity be purchased with registered funds by the end of the year in which the annuitant attains 71 years of age). ALDAs will be permitted under a retirement savings plan (RRSP), registered retirement income fund (RRIF), deferred profit-sharing plan (DPSP), pooled registered pension plan (PRPP) and defined contribution registered pension plan (RPP).

The value of an ALDA will not be included for the purpose of calculating the minimum amount required to be withdrawn in a year from an RRIF, a PRPP member's account or a defined contribution RPP member's account, after the year in which the ALDA is purchased. However, an individual will be subject to a lifetime ALDA limit equal to 25 per cent of a specified amount in relation to a particular qualifying plan. This specified amount will equal the sum of the value of all property (other than most annuities, including ALDAs) held in the qualifying plan as at the end of the previous year and any amounts from the qualifying plan used to purchase ALDAs in previous years. In addition, an individual will also be subject to a comprehensive lifetime ALDA dollar limit of C$150,000 from all qualifying plans. This lifetime ALDA dollar limit will be indexed to inflation for taxation years after 2020, rounded to the nearest C$10,000.

There are detailed rules that must be satisfied in order to qualify as an ALDA.

If an individual purchases ALDA contracts in excess of their ALDA limit, a tax of one per cent per month will apply to the excess portion. However, all or some of the tax on the excess portion may be waived or cancelled if the annuitant establishes that the excess portion was paid as a consequence of a reasonable error, and the excess portion is returned to an RRSP, RRIF or other eligible vehicle by the end of the year following the year in which the excess portion was paid.

On death, if the beneficiary of a lump-sum death benefit is the deceased annuitant's surviving spouse or common law partner, or a financially dependent child or grandchild of the annuitant, the lump-sum death benefit will be included in the beneficiary's income for tax purposes. However, all or a portion of that amount will be permitted to be transferred on a tax-deferred basis to the RRSP, RRIF, or other qualifying vehicle of the beneficiary. If the beneficiary of a lump-sum death benefit is neither the deceased annuitant's surviving spouse or common law partner, nor a financially dependent child or grandchild of the deceased annuitant, the lump-sum death benefit paid to a beneficiary will be included in the income of the deceased annuitant for the tax year.

Variable Payment Life Annuity

A variable payment life annuity (VPLA) provides payments that vary based on the investment performance of the underlying annuities fund and on the mortality experience of VPLA annuitants. VPLAs will be permitted under a PRPP and a defined contribution RPP. VPLAs will need to satisfy prescribed requirements in order to qualify as such.

With respect to VLPAs, PRPPs and defined contribution RPPs, administrators will be permitted to establish a separate annuities fund under the plan to receive transfers of amounts from members' accounts to provide VPLAs. However, a minimum of 10 retired members will be required to participate in a VLPA arrangement in order for a plan to establish such an arrangement. Furthermore, it must be reasonable to expect that at least 10 retired members will participate in the arrangement on an ongoing basis. Only transfers from a member's account will be permitted to be made to the annuities fund; direct employee and employer contributions will not be permitted.

The existing rules for PRPPs and defined contributions RPPs relating to non-compliance will apply in respect of non-compliance with the tax rules for VPLAs. In addition, the tax treatment of VPLAs on the death of the annuitant will reflect the existing tax treatment of annuities purchased with PRPP and defined contributions RPP savings.

The 2019 Budget states that the federal government plans to consult on potential changes to federal pension benefits standards legislation to accommodate VPLAs for federally regulated PRPPs and defined contribution RPPs. Provinces may need to amend their own provincial pension benefits standards legislation if they wish to accommodate VPLAs for provincially regulated PRPPs and defined contribution RPPs.


The 2019 Budget proposes to stop the use of individual pension plans to avoid the prescribed transfer limits, which are meant to prevent inappropriate tax deferrals when individuals transfer assets out of certain types of pension plans. The 2019 Budget states that this will be accomplished by prohibiting individual pension plans (IPPs) from providing retirement benefits in respect of past years of employment that were pensionable service under a defined benefit plan of an employer other than the IPP's participating employer or its predecessor employer. In addition, any assets transferred from a former employer's defined benefit plan to an IPP that relate to benefits provided in respect of prohibited service will be considered to be a non-qualifying transfer that is required to be included in the income of the member for income tax purposes. This measure will apply to pensionable service credited under an IPP on or after March 19, 2019.


In general, the tax rules ensure that contributions to a defined benefit RPP in respect of a member are not made after the member can no longer accrue further pension benefits. Under the tax rules, a member ceases to accrue pension benefits after the end of the year in which the member attains 71 years of age or if the member has returned to work for the same or a related employer, and is receiving a pension from the plan (except under a qualifying phased retirement program). However, in the case of a specified multi-employer plan (SMEP), employer contributions are deemed to be eligible contributions in order to ensure that such plans can operate effectively under the tax rules. Consequently, employers are not prevented by the tax rules from making contributions to a SMEP in respect of workers over age 71 or those receiving a pension from the plan, if such contributions are required by the plan. In addition, in requiring an employer to contribute in respect of employed union members, some collective bargaining agreements and SMEP plan terms do not prevent contributions in respect of workers in these situations.

The 2019 Budget proposed to amend the tax rules to prohibit contributions to a SMEP in respect of a member after the end of the year the member attains 71 years of age, and to a defined benefit provision of a SMEP if the member is receiving a pension from the plan, except under a qualifying phased retirement program. In order to provide SMEP sponsors and employers with a flexible transition period, this measure will apply in respect of SMEP contributions made pursuant to a collective bargaining agreement entered into after 2019, in relation to contributions made after the date the agreement was entered into.


Under the current tax rules, the trustee of a tax-free savings account (TFSA) is jointly and severally liable with the TFSA for Part I of the Income Tax Act tax on income from a business carried on by the TSFA or from non-qualified investments, while the holder of the TFSA is not. The 2019 Budget proposes that the joint and several liability for Part I tax be extended to the TFSA holder. In addition, the joint and several liability of the trustee will be limited to the property held in the TFSA at that time, plus the amount of all distributions of property from the TFSA on or after the date that the notice of assessment is sent. This measure will apply to the 2019 and subsequent taxation years.


While the federal government awaits the final report of the Advisory Council on the Implementation of National Pharmacare the budget announces three pharmacare changes, each to be developed with the provinces and territories:

  1. The creation of the Canada Drug Agency to take a coordinated approach to assess effectiveness and negotiate better prescription drug prices
  2. To develop a national formulary, which will be a comprehensive, evidence-based list of prescribed drugs.
  3. A national strategy for high-cost drugs for rare diseases.


The 2019 Budget proposes to introduce legislative amendments that would proactively enroll Canada Pension Plan (CPP) contributors who are age 70 or older in 2020, but have not yet applied to receive their CPP benefits.


The 2019 Budget proposes to introduce legislation that would enhance the Guaranteed Income Supplement (GIS) earnings exemption beginning with the July 2020 to July 2021 benefit year.

We will be discussing the 2019 Budget in further detail at our seminar on April 30, 2019.

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© 2018 Blake, Cassels & Graydon LLP.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Events from this Firm
30 Apr 2019, Seminar, Toronto, Canada

We invite you to join us for our semi-annual program exploring recent updates and legal developments in pensions and employee benefits law.

14 May 2019, Seminar, Toronto, Canada

We know that diversity, in all forms, enriches the conversation and decision-making in the boardroom. Blakes strives to be at the forefront of creating opportunities for women to get a seat and, more importantly, a say, at the board table. In order to do just that, in 2017 we launched our Women GCs on Boards program, which supports women GCs who have the potential to be ideal candidates for board positions.

16 May 2019, Other, Toronto, Canada

Blakes invites you to join us for our annual presentation on current Canada-U.S. cross-border tax developments.

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