Canada Consults On New Pension Law

by Mike Godfrey, Tax-News.com, Washington

16 December 2011

The Canadian government has released for consultation a package of draft legislative proposals to bring in a new pension vehicle.

The legislation will amend the current Income Tax Act and the Income Tax Regulations to accommodate the establishment of Pooled Registered Pension Plans (PRPPs). Legislation to implement the federal portion of the new framework was introduced last month, while this most recent initiative will set the stage for the Canadian provinces to bring in legislation to create PRPPs.

Under the new scheme, PRPP members will “pool” their pensions through their administrators, with the aim that costs will be lower. In addition, by providing a low-cost retirement savings opportunity for employees as well as the self-employed, the government aims to ensure PRPPs play a key role in improving the range of retirement savings options available. In particular, small business owners and their employees are outlined as the target audience, with access to a private pension plan now available for the first time.

As set out in the consultation package, the PRPP tax rules have been designed to be simple and straightforward and to promote low-cost plans. The government hopes they will encourage take-up by employers and ultimately, greater pension coverage among Canadians. The proposed tax rules for PRPPs will apply to both federally and provincially regulated PRPPs and will operate alongside the Pooled Registered Pension Plans Act.

Launching the consultation, Ted Menzies, Minister of State (Finance), said: “I want to thank all our provincial partners for their work and engagement on this file. In particular, Quebec has been among our most engaged partners in crafting an innovative, new and low-cost savings option for those without access to a workplace pension plan.”

Raymond Bachand, Quebec’s Minister of Finance, Minister of Revenue and Minister responsible for the Montréal region, added: “The government of Quebec welcomes the federal government’s decision to quickly make changes to tax legislation to accommodate PRPPs. This announcement will allow us to fulfill our commitment made in the 2011–2012 budget to put in place new voluntary retirement savings plans."

The consultation remains open for comment until February 14, 2012. The government will then proceed with legislation "at an early opportunity" to implement the amendments, taking into account the comments received.

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