Benefits in Excess of the Income Tax Act Limits

The Income Tax Act (Canada) provides significant tax advantages to the participants of a registered pension plan. To control the amount of the foregone tax, the Income Tax Act limits contributions to, and benefits payable from, pension plans.

To avoid a conflict between federal and provincial legislation, section 42 of The Pension Benefits Regulations, 1993 unlocks money that must be paid as cash pursuant to the Income Tax Act:

"42(1) Where:

1. a plan provides a benefit or allocates surplus funds with respect to a person entitled to a benefit and the benefit or surplus fund allocation is in excess of the maximum benefit or contribution limit applicable to the plan pursuant to the Income Tax Act (Canada); or
2. the commuted value of a benefit is in excess of the maximum amount that may be transferred to another plan or to an RRSP pursuant to the Income Tax Act (Canada);

the amount of that benefit, surplus allocation or commuted value that is in excess of that maximum limit is exempt from subsections 29(1) and (2) of the Act and shall not be treated as being locked-in for the purposes of these regulations."

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