NO.: IC 74-21R

DATE : June 6, 1977

SUBJECT: Payments out of Pension and Deferred Profit Sharing Plans – ITAR 40

1. Under the former Income Act Tax certain receipts of income, such as lump sum payments, and other transactions which resulted in a taxpayer being required to report substantial amounts of income in a year could be taxed at a reduced rate. These elective provisions for the most part disappeared with the taxation year 1973, since the averaging provisions in the new Act now provide similar relief.

2. However, certain lump sum payments such as a single payment out of a pension fund or a deferred profit sharing plan may still be eligible for election beyond 1973 in a manner similar to that under section 36 of the former Income Tax Act. This applies to those portions of such payments which would have been payable December 31, 1971. The amounts credited to pension funds and deferred profit sharing plans after that date may be subject to the averaging provisions of the new Act.

3. The T4A Supplementary will provide an enlarged Box (D) “Lump Sum Payment” so that the payor can report a breakdown of the amounts returned as pension or deferred profit sharing plan contributions which could have been payable December 31, 1971, and those contributions which have accrued after December 31, 1971.

In that portion of box (D) designated for the reporting of lump sum payments accrued to December 31, 1971, the payor will report:

(a) That portion of a single payment which would have been payable December 31, 1971, out of a pension fund upon the death, withdrawal or retirement from employment of an employee or former employee, or upon the winding-up of the plan or an amendment to the plan.

(b) That taxable portion of a single payment which would have been payable December 31, 1971, out of a deferred profit sharing plan upon the death, withdrawal or retirement from employment of an employee or former employee.

In that portion of Box (D) designated for the reporting of lump sum payments accrued after December 31, 1971, the payor will report:

(a) That portion of a single payment accrued after December 31, 1971, out of a pension fund upon the death, withdrawal or retirement from employment of an employee or former employee, or upon the winding-up of the plan or an amendment to the plan.

(b) That taxable portion of a single payment, accrued after December 31, 1971, out of a deferred profit sharing plan upon the death, withdrawal or retirement from employment of an employee or former employee.

The following amounts will be reported in Box (H) under “Other Income”:

(a) A single payment in recognition of long service upon retirement from employment and not made out of or under a superannuation fund or plan,

(b) A payment or payments in respect of loss of office or employment if made in the year of retirement or within one year after that year.

(c) The gross amount of any payment or payments as a death benefit upon or after death of an officer or employee in recognition of his service if made in the year of death or within one year after that year.