Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Whether contributions by an employer to an EPSP which are included in the employee's income under 6(1)(d) could be recharacterized as something other than employment income when they are distributed out of the trust.
Position: No.
Reasons: In order that there be tax certainty, the characterization of amounts for tax purposes must be determined at the time of tax incidence i.e. for the employer - at the time that the contributions are made, and for the employees - when they are allocated under section 144.
April 6, 2004
HEADQUARTERS HEADQUARTERS
Appeals Branch Income Tax Rulings
CPP / EI Appeals Division Directorate
C. Lalonde
Attention: Mr. André Lebourdais 957-2060
2004-006283
Employee Profit Sharing Plan (EPSP)
This is in reply to your e-mail of February 16, 2004 wherein you requested our opinion on whether amounts contributed by an employer to an EPSP are always included in the beneficiaries' employment income when allocated under section 144 of the Income Tax Act (the "Act"). You are asking whether there is any possibility that we would recharacterize the nature of the employer's contributions when received by the employees as something other than employment income because of the type of income generated in the trust or in cases where the distributions were not made by the trust immediately after the allocation.
For tax certainty to exist, the nature of the amounts for the purposes of determining the tax treatment must be determined at the time that the incidence of tax arises. The incidence of tax for the employees is at the time of the allocation. The amounts allocated are included in the beneficiary's income from employment under paragraph 6(1)(d) and become part of the capital of the trust. There is no tax incidence at the time of distribution of the capital of the trust. Consequently, at the time of distribution, we would not recharacterize the amounts for tax purposes.
We confirm that, with respect to an EPSP, by definition in subsection 144(1) of the Act, all the employer's contributions to the plan in the year must be allocated to the employees in that year regardless of the other types of income of the trust or when the amounts are distributed.
Roberta Albert, CA
Manager
Income Tax Rulings Directorate
Policy and Planning Branch
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