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Federal government issues draft tax relief for pension plans

On July 2, 2020, the federal government released new draft regulations aimed at providing relief for registered pension plans, as part of the government of Canada’s COVID-19 Economic Response Plan.

The draft regulations would amend the Income Tax Regulations made under the Income Tax Act (the Regulations) to provide temporary relief from various rules applicable to registered pension plans.

  • The existing restrictions that prohibit pension plans from borrowing money for periods of more than 90 days (with certain exceptions) will be temporarily eased, permitting pension plans to enter into loan agreements after April 2020 and before February 2021, provided the loans are repaid no later than April 30, 2021.
  • Where a member’s period of reduced services ends in a year, and defined benefit (DB) pension plan past service is credited for that period before April 30 of the following year, restated PAs are reported for the past years rather than PSPAs. Similarly, defined contribution (DC) pension plan contributions made before April 30 of the year following the year of termination of a period of reduced services, to the extent that they relate to a calendar year spanned by the period of reduced services, are included in the PA for the calendar year. These deadlines are extended to June 1, 2020, or a later date acceptable to the Minister, for periods of reduced services that ended in 2019. The extensions will accommodate delays that may have resulted from COVID-19.
  • To the extent that required contributions under a DC pension plan had been reduced in 2020, the amended Regulations will allow pension plans to permit catch-up contributions to be made in 2021. Under the amended Regulations, “retroactive contributions” can be made provided:
    • If the contribution is made by an individual member,
      • The individual makes the contribution after 2020 and on or before April 30, 2021, or
      • The individual makes a written commitment, on or before April 30, 2021, to the plan administrator or a participating employer, to make the retroactive contribution.
    • If the contribution is made by a participating employer,
      • The employer makes the contribution after 2020 and on or before April 30, 2021, or
      • The contribution is conditional on the member making a written commitment, on or before April 30, 2021, to the plan administrator or a participating employer, to make a retroactive contribution as provided above.

Such a retroactive contribution replaces all or part of a contribution that would have been required in 2020 if not for a plan amendment reducing required contributions.

These additional contributions will be deemed to have been made in 2020 for pension adjustment purposes. They will remain deductible in the year in which they are made.

  • For the purpose of using prescribed compensation to determine benefit or contribution levels for 2020, the amended Regulations will remove the condition that an employee have been employed for 36-months in the definition of “eligible period of reduced pay.”
  • The amended Regulations will also allow any periods during which employee wages are reduced in 2020 to qualify as eligible periods of reduced pay for the purposes of prescribed compensation. This would allow a pension plan to provide pension contributions or pension benefits to employees subject to wage reductions based on their wages before the wage reduction.


While no effective date for the amendments has been announced, longstanding CRA practice permits taxpayers to act on the assumption that proposed tax measures will be enacted. The rules will provide additional flexibility to both employers and employees who are affected by temporary absences of employment or wage reductions, as well as contribution reduction amendments in defined contribution pension plans. The additional borrowing flexibility may also be of assistance during periods of investment volatility.

News & Views - August 2020 (PDF)