Tax and RRSP Questions

For Current Employees, if I elect a lump sum, what is the tax I pay?

The tax withholding from your lump sum payment will be in accordance with your marginal tax rate based on your annual income from MTS (including the lump sum payment) in the year that the lump sum payment is made.

Please remember that when you file your tax return, you may owe more or less tax on the lump sum depending on your total income for the year.

For Current Employees, what are the tax implications of a direct transfer to an RRSP?

If you elect a transfer to your RRSP, the payment amount will be taxable income, but you will also be given a tax receipt for the amount of the transfer, so that you should not have to pay income tax on the RRSP transfer amount.

In accordance with Canada Revenue Agency rules, MTS will withhold regular deductions for Canada Pension Plan (CPP) and Employment Insurance (EI) prior to the transfer, but will not withhold any income tax from the transfer.

What is acceptable proof of RRSP room?

You must provide a copy of your 2013 Notice of Assessment. If you do not have a copy of your Notice of Assessment, one may be requested from Canada Revenue Agency. If you are concerned that you won’t receive the copy before October 27, you may return your signed Election and Declaration page by October 27, 2014 in the self-addressed envelope and provide your notice of assessment as soon as you receive it. You may provide your notice of assessment directly to MTS at MP19B only if you are in this situation.

I can’t find my notice of assessment, and CRA told me it could take 10 days to send me a copy. I may not get it in time for the October 27 deadline.

If you use CRA’s online services, you can confirm your RRSP contribution room online and print off a copy.  If you are being sent a copy of your Notice of Assessment by mail, you may return your signed Election and Declaration page by October 27, 2014 in the self-addressed envelope and provide your Notice of Assessment as soon as you receive it. You may provide your Notice of Assessment directly to MTS at MP19B only if you are in this situation.

With the RRSP option for Current Employees, can I transfer to my spouse’s RRSP if there is room?

You may only request a transfer to an RRSP up to the amount of your own personal RRSP contribution room.  The transfer can be made to either your own RRSP or a spousal RRSP.

If you don’t have enough personal RRSP room, but your spouse has additional RRSP room, you and your spouse may make a contribution to your spouse’s RRSP using the lump sum cash payment you received. However, your lump sum payment will be net of taxes withholding.

With the RRSP option for Current Employees, can I transfer to a TFSA?

MTS cannot transfer the settlement payment directly to a TFSA. If you wish to contribute an amount to your TFSA, you can do so after you receive the payment from MTS, which will be net of taxes withholding.

For Retirees and Former Employees only… if I elect a lump sum, what is the tax I pay?

The tax withholding depends on the amount of your lump sum:

  • Up to $5,000: 10%
  • Over $5,000 and up to $15,000: 20%
  • Over $15,000: 30%

Please remember that when you file your tax return, you may owe more or less tax on the lump sum depending on your total income for the year.

For Former Employees, why can’t I transfer my surplus distribution to a locked-in RRSP?

The surplus distribution is not considered locked-in funds; therefore, the payment must be made in a cash lump sum payment less withholding taxes.

For Retirees, is the lump sum payment eligible for income splitting?

The lump-sum payment from the Plan will not be eligible for pension income splitting. The payments do not meet the definition of “eligible pension income” under subsection 118(7) of the Income Tax Act (Canada). Subsection 118(7) outlines a specific list of payments which may be included in “eligible pension income”, which generally involve only periodic payments or annuity payments.

Does the lump sum payment qualify as a retroactive lump sum payment in accordance with CRA’s form T1198E?

Form T1198 is not applicable to the lump-sum payments. Form T1198 allows the recipient of a Qualifying Retroactive Lump-Sum Payment to allocate part of the payment to earlier taxation years. The form is based on section 110.2 of the Income Tax Act (Canada), which provides for a deduction of qualifying amounts where there is a “specified portion” attributable to earlier taxation years. The definition of “specified portion” indicates that an amount can be designated only “to the extent that the individual’s eligibility to receive the portion existed in the year.” In the present case, the payments will result from the settlement agreement in the current year, and no eligibility to receive any portion of the amounts existed in prior years. As such, the payments will not be Qualifying Retroactive Lump-Sum Payments for the purposes of Form T1198.

If the Implementation Agreement is approved by Justice Bryk on November 3, 2014 and there is no appeal prior to December 3, 2014, and MTS is able to make an interim payment in 2014 with the final payment in 2015; will MTS issue a T4A for the 2014 tax year with a separate T4A for the 2015 tax year? Would this be permitted by CRA?

If an interim payment is made in 2014, this amount will be included on a T4A for 2014. The final payment made in 2015 would be included on a 2015 T4A. In this case, the income is spread over two calendar years and the income tax owing for 2014 would only relate to the amount of the payment received in 2014. The 2015 payment would be taxed as part of your 2015 income.

General Questions

Where do I send my completed Declaration to?

MTS Pension Lawsuit Settlement

175 Bloor Street East, South Tower, Suite 1701

Toronto, ON  M4W3T6

How were the distribution options for member determined?

The distribution options were chosen by the parties during the negotiations after considering which options would be permitted by Canada Revenue Agency and which options would be practical to administer.

Current Employees have been given the option for transfer to a RRSP because the payment is being made directly from MTS.

For Retirees and Former Employees, this was not considered a viable option due to the administrative complexities and time delays that this option would create in the Pension Plan.

Retirees who retired prior to July 1, 2013 have been given the option to increase their pension benefit because the Canada Revenue Agency rules restrict the Plan’s ability to increase pensions for other members, including more recent retirees.

Can you give me the formula used to calculate my settlement amount?

Your settlement amount depends on the value of your pension benefit (including your years of credited service, your average earnings, your age, and for retirees, date of retirement), but also on the value of everyone else’s pension benefit. The calculations include complex actuarial formulas prepared by the Plan’s actuaries which were tested and verified by an independent actuary hired by the unions and the retiree association which represented all plan members.

If you wish to review the methodology which was used to determine the surplus share for each category of membership, please refer to the Appendices of the “Pension Plan Surplus and Implementation Agreement”.

Can I receive my amount in two payments, one in 2014 and one in 2015?

Due to Canada Revenue Agency rules, we are not able to give members or former members a choice of when they receive their payment. The timing of the settlement payments will depend on when the judge issues his order approving payments in accordance with the negotiated agreement, and when other regulatory approvals are received. MTS will process the payments as soon as possible after all approvals are confirmed, which may be in late 2014 or early 2015. It is possible that an interim payment could be made after the court approval with a final payment to follow a month or two later once all of the calculations have been finalized.

Who can witness the signature?

Anyone over the age of 18 can witness your signature. This may include your family members and spouse.

If I elect the pension increase option (for retirees), what is the form of pension?

The additional pension will be paid in the same form as the pension you are currently receiving with the same survivor benefits that apply to your basic pension (if any). The additional pension is eligible for future cost-of-living adjustments at 2/3rds of inflation (up to a maximum of 4% inflation) for all future years.

For Current Employees, does a lump sum qualify as pensionable earnings?

No, the lump sum will not be included in your pensionable earnings.

For Current Employees, will the payment be on separate cheque or included with regular payroll?

Payments to Current Employees will be paid at the same time as a regular payroll cycle. Payment will be made by direct deposit if you are still a Current Employee at the time of payment and by cheque if, for any reason, you have left employment with the company at the time of payment.

I understand that my payment options are determined based on my status in the Pension Plan. At what date is my status determined for this purpose?

Your payment options are based on your status at August 31, 2014.

I am the executor/administrator of the estate for a deceased person. The estate is eligible to receive a pension surplus distribution but the estate has long been closed. Is it possible to have the payment made directly to the beneficiaries of the estate?

The parties are asking the court to decide on this item. In the Settlement Agreement (Section 22), which will go before the court on November 3, 2014, the parties have proposed to permit the executor or administrator of the estate to instruct the Plan to make the surplus distribution payment directly to one or more estate beneficiaries. At this time, there is no guarantee that the court will approve this request.

Am I going to receive a statement outlining what my final distribution amount is?

No. The parties have agreed that in order to expedite the payment process and to keep costs down, a second round of statements will not be sent.