27 November 1985 Income Tax Severed Letter A-1922 - [Transfer of Capital Interest in Employee Benefit Plan]

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.

XXXX

R. Lafontaine

November 27, 1985

Re: Transfer of Capital Interest in Employee Benefit Plan

This is in reply to your verbal request to comment on your inter-office memorandum dated September 24, 1985 and addressed to you.

As a result of a divorce settlement a taxpayer has to transfer some properties to his former spouse. The taxpayer is a member of an Employee Benefit Plan (the "plan"). It has been proposed that the spouse become a member of the Plan pursuant to a divorce judgement and be entitled to receive approximately 40% of the taxpayer's capital interest in the Plan.

Your opinion is that this transfer may be held as a transfer of capital property to a former spouse in settlement of rights arising out of their marriage which qualify for treatment under subsection 73(1) of the Income Tax Act (the "Act").

We disagree with your interpretation.

If the Plan is a trust, under paragraph 108(1)(j) of the Act, subsection 104(4), (5), (12) and (15) and sections 105 to 107 would not apply to the trust. In view of the above we do not find any provisions in the Act, dealing with a disposition of capital interest in a plan except for Section 107.1. Section 107.1 only applies when a property of a trust governed by a plan has been distributed by the trust to a taxpayer in satisfaction of his interest in the trust; it does not apply for a disposition of capital interest to another individual.

Furthermore, paragraph 6(1)(g) provides that all amounts received in the year from the disposition of any interest in a plan is an income from an office or employment. Consequently, it does not mean the definition of capital property under subsection 54(b). Thus subsection 73(1) does not apply.

As stated in paragraph 10 of Interpretation Bulletin IT-502 , the Department will give consideration to the application of subsection. 56(2) (indirect payments) where payments are made to persons other than the employee or former employee while alive.

We trust these comments will be of assistance to you.

for Director Bilingual Services Division Rulings Directorate Legislative and Intergovernmental Affairs Branch