8 September 2000 Internal T.I. 2000-0036107 - EPSP-WITHHOLDING REQUIREMENTS

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Whether withholding is required on EPSP amounts.

Position: Withholding under subsection 153(1) is not required when an employer contributes to an EPSP nor when the trustee makes an allocation to the beneficiary. Further, unless payments from an EPSP are taxable, which is generally not the case, withholding from these payments is not required.

Reasons: Paragraph 15 of IT-428.

		September 12, 2000

	Revenue Collections Directorate	HEADQUARTERS
	Trust Accounts Division	J. Gibbons
	Peter Pustay	957-2135

		2000-003610

Withholding Requirements Re: Employee Profit Sharing Plan ("EPSP")

We are replying to your facsimile dated April 8, 2000, in which you requested our views on the above-captioned issue. You are writing because an accounting firm finds the instructions for the withholding requirements for EPSPs in paragraph 15 of IT-379R unclear.

An EPSP is an arrangement that allows an employer to share profits with all, or a designated group of, employees. Under an EPSP, amounts are paid to a trustee to be held and invested for the benefit of the employees who are beneficiaries of the plan. Each year, the trustee is required to allocate to such beneficiaries all employer contributions, profits from trust property, capital gains and losses, and certain amounts in respect of forfeitures. These allocated amounts, with certain exceptions, are included in computing the taxable income of the beneficiaries for the year in which they are allocated and accordingly are not subject to tax when they are actually paid to the beneficiaries.

According to paragraph 15 of IT-379R, withholding under subsection 153(1) is not required when an employer contributes to an EPSP, nor is it required when the trustee makes an allocation to the beneficiary. Further, because payments from an EPSP are generally non-taxable, since amounts from an EPSP are taxed when they are allocated, payments from an EPSP are normally not subject to any withholding requirements. However, there are situations where payments from an EPSP are taxable so that withholding from these payments would be required. For example, if the amounts allocated under an EPSP relate to duties performed outside Canada by a non-resident employee, the amount is not required to be included in computing the non-resident's taxable income earned in Canada. However, if the non-resident returns to Canada, payments out of the EPSP that are attributable to amounts not previously included in income would have to be included in income pursuant to paragraphs 6(1)(d) and 144(7)(b) and, accordingly, would be subject to withholding requirements.

We trust that these comments will be of assistance.

John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate

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