Tax relief measures for municipal sector defined-benefit pension plansLinkedIn
There, in black and white
NB Bulletin Vol. 12 N. 12, October 2009
In the wake of various consultations with the municipal sector, the Ministère des Affaires municipales, des Régions et de l'Occupation du territoire (MAMROT) published an information document on October 7 concerning the supervision and follow-up of the tax relief measure for municipal sector defined-benefit pension plans. Initially introduced during the 2009 budget preparations for municipal organizations, this tax relief measure was intended to mitigate the effects of the 2008 economic crisis on the 2009 tax burden. This new MAMROT document specifies its future application.
The tax relief measure (corridor method)
As a result of the tax relief measure, a municipal organization may reduce the impact of 2008 losses on accounting expenses within a corridor representing 10% of the value of the liability or asset at the beginning of 2009, whichever is higher. This impact, which is the result of the amortization and interest on losses within the corridor, is instead assigned annually to future provisions specifically set up for the tax relief measure.
Supervision and follow-up of the tax relief measure
The corridor method is based on the principle that reversal of future provisions will be implemented in due course on the basis of subsequent years' gains. However, MAMROT is concerned that the level of gains that may be realized in future years would not be enough to compensate for 2008 losses within a reasonable timeframe, which could result in an unwarranted intergenerational transfer.
Importance of understanding and taking action
As a result of this announcement, each municipal organization must decide how it will make use of the tax latitude made available by this measure. In performing this exercise, the overall impact of tax relief measures provided by MAMROT-including other employee future benefits -should be considered.
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