27 February 2001 External T.I. 2001-0065545 - EPSP distribution to trust for beneficiary

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: Where an EPSP distributes property, other than money, to a trust for the benefit of a vested EPSP beneficiary, will subsection 144(7.1) apply to deem the EPSP not to have disposed of the property?

Position: No.

Reasons: Subsection 144(7.1) applies to distributions by the EPSP trust to the beneficiary. Since the distribution is to a trust for the benefit of a beneficiary of the EPSP, we have to look at the new definition of disposition to make this determination.

XXXXXXXXXX 2001-006554
M. P. Sarazin, CA
February 27, 2001

Dear XXXXXXXXXX:

Re: Employee Profit Sharing Plan Distribution of Property

This is in reply to your letter of January 12, 2001, requesting our views regarding the application of subsection 144(7.1) of the Income Tax Act (the "Act') and the proposed definition of "disposition" in subsection 248(1) of the Act where an employee profit sharing plan ("EPSP") trust distributes property, other than money, to a trust established for the benefit of a vested beneficiary under the EPSP.

You are of the view that the proposed definition of "disposition" in subsection 248(1), which will be effective for transaction occurring after December 23, 1998, will exclude the distribution of property by an EPSP trust to a trust created for the beneficiary of the EPSP trust. However, a disposition will result on the distribution as a result of the application of subsection 144(7.1) of the Act because it applies to EPSP distributions.

Comments

Confirmation of the tax consequences associated with completed transactions are provided by the relevant tax services office. Opinions concerning proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. For more information concerning advance tax rulings, please refer to Information Circular 70-6R4 dated January 29, 2001, issued by the Canada Customs and Revenue Agency (the "Agency"). Copies of information circulars and interpretation bulletins are available from your local tax services office or on the Internet at the following site - http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. However, we can provide you with the following general comments.

Under paragraph (c) of the proposed definition of "disposition" in subsection 248(1), a transfer of property to a trust, except as provided in the exceptions found in (f) or (g) of the definition, will be considered a disposition. In order to qualify for the exception in paragraph (f), several conditions have to be satisfied. The transfer of property by an EPSP trust to a trust that is not an EPSP trust will not meet the condition described in (f)(vi) of the proposed definition of "disposition". Consequently, the transfer of property by an EPSP trust to a trust for the benefit of a beneficiary under the EPSP will constitute a disposition for purposes of the Act.

Subsection 144(7.1) of the Act permits a beneficiary to defer the recognition of any gains on the property, other than money, received by a beneficiary as a distribution from an EPSP. We note that this deferral is allowed when property is distributed to the beneficiary. This provision would not apply when an EPSP distributes property to a trust established for the benefit of a beneficiary.

Since an EPSP is defined in subsection 144(1) to mean an arrangement whereunder an employer makes payments, computed by reference to its profits, to a trustee for the benefit of employees of the employer or of a corporation with which the employer does not deal at arm's length, we would question whether a distribution could be made by an EPSP to a trust established for the benefit of an EPSP beneficiary under the terms of the particular arrangement.

We trust the above comments will be of assistance to you.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate