21 December 1995 External T.I. 9532565 - 401(K) PENSION PLAN & EMPLOYEE BENEFIT PLAN (7200-8)

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 contributions made by a Canadian resident employee to a U.S. 401(k) pension plan are included in the employees gross employment income.

Position:

Yes

Reasons:

	There is no deduction for employees contributions to a 	401(k) plan and employees are considered to have 	received their gross employment income not the net 	amount after 401(k) contributions.

		953256
XXXXXXXXXX		G. Middleton
(613) 957-2122
Attention:  XXXXXXXXXX

December 21, 1995

Dear XXXXXXXXXX:

This is in reply to your letter of November 14, 1995 and further to the telephone conversation of December 20, 1995 (XXXXXXXXXX/Middleton) concerning the Canadian income tax treatment for contributions made by a Canadian resident employee to a plan described in section 401(k) of the U.S. Internal Revenue Code.

It is our understanding that a 401(k) plan is a U.S. salary deferral plan under which eligible employees can elect to have their employer contribute part of their before-tax pay to the plan rather than receive the cash. For Canadian income tax purposes, the gross earnings from employment for Canadian resident employees include the amount of their contributions to a 401(k) plan and, furthermore, there is no provision in the Canadian Income Tax Act which provides for a deduction for employee contributions to a 401(k) plan. Therefore, a Canadian resident employee is subject to tax in Canada on his gross employment income not the net amount after 401(k) contributions.

We trust the above comments satisfactorily answer your enquiries.

Yours truly,

for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch