On July 18th, 2015, the Canada Revenue Agency ("CRA") announced changes to its registered pension plan review process, which will be based upon risk criteria.1 These changes stem from the results of a recent pilot project conducted by the CRA for the purpose of identifying areas of risk. This BLG Pension Alert summarizes the CRA's Comprehensive Risk-Based Cyclical Review of Registered Plans, which will be of interest to pension plan administrators, plan sponsors and other industry stake-holders.
New changes in the CRA review process
Historically, plan amendments have been reviewed on a first-come, first-served basis. Under the new process, although receipt of all plan amendment applications will be confirmed by letter, only plan amendments identified as raising a high risk issue will be reviewed. For all registered plans, the CRA reviews the plan (including all amendments received since the last comprehensive review) at least once every 6 year cycle. The CRA will also use risk indicators to determine which pension plans should be subject to an earlier comprehensive risk-based review as opposed to its regularly scheduled comprehensive review. There are no changes to the processing order of new plans, waivers, administrative relief, written enquiries, validations of earnings and service, and draft plans.
The CRA have identified the following risk criteria (which may change over time):
- There is a change in the status of the plan
- There is a perceived higher risk of non-compliance with the Income Tax Act (the "Act") and IncomeTax Act Regulations (the "Regulations")
- The review cycle has ended and the plan has come up for periodic review
The comprehensive risk-based review will focus on the terms of the plan, its funding document and any request for plan funding. If any issues are identified, the CRA may request corrections to the plan. The CRA may also verify certain issues about plan administration and reporting. After any issues have been resolved, the CRA will confirm by letter that the plan complies with the Act and Regulations. If corrections have been requested or the plan has not been properly administered, the matter may be referred to the Audit Division of the Registered Plans Directorate to ensure any issues have been addressed.
Plan administrators requesting an amendment should complete and include form T920 (Application to Amend a Registered Pension Plan) with the application to enable the CRA to identify if any high-risk issues are present. If the submission is urgent, include Form T2014 (Registered Pension Plan Priority Identification). After an amendment is sent, and provided it is reasonable to believe that the CRA will accept the amendment when it comes up for review, the amendment will constitute part of the plan as registered. As a result, you must administer the amendment as part of your plan. The CRA will work with plan administrators to address any issues that are identified after the fact, most of which can normally be dealt with on a prospective basis. However, the CRA has advised that it will not consider a prospective remedy in the following circumstances:
- There is an issue of primary purpose
- A benefit accrual rate was submitted that is not allowed under the Act
- The employee contribution rate was set over 9% – unless a waiver was given by the CRA
- An issue is uncovered in an audit
*The Author recognizes the assistance of Martin Barlow, Summer Law Student.
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.