14 February 2001 External T.I. 2001-0067315 - EPSP, children, conditions

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:

Can an EPSP be set up for the benefit of the employer's children where the children will only get entitlements under the EPSP if they satisfy certain non-employment related conditions?

Position: Probably not.

Reasons:

The EPSP would have to satisfy subsection 144(1) and we would question whether the arrangement is for the benefit of employees of the business.

XXXXXXXXXX 		2001-006731
M. P. Sarazin, CA
February 14, 2001

Dear XXXXXXXXXX:

Re: Employee Profit Sharing Plan for your Children

This is in reply to your facsimile of January 24, 2001, requesting our views regarding the establishment of an employee profit sharing plan ("EPSP") for the benefit of your two children that you wish to employ in your business. Rights under the EPSP will be contingent on non-employment related conditions.

Comments

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. Consequently, we can only provide you with the following general comments.

Paragraph (a) of the definition of "employees profit sharing plan" in subsection 144(1) of the Income Tax Act (the "Act") defines an EPSP (in part) as a plan under which payments computed by reference to:

(i) an employer's profits from the employer's business,

(ii) the profits from a business of a corporation with which the employer does not deal at arm's length, or

(iii) any combination of the amounts described under (i) and (ii)

are required to be made by the employer to a trustee under the arrangement for the benefit of employees of the employer or of a corporation with which it does not deal at arm's length.

We note that an EPSP arrangement requires that the EPSP provide benefits to employees of the employer. Consequently, in the context of an advance income tax ruling request, we would have to review all of the facts related to the employment of your children, including the terms and conditions of the proposed EPSP arrangement, in order to determine whether or not your proposed arrangement would satisfy subsection 144(1) of the Act. However, it should be noted that, in our view, non-employment related conditions imply that an arrangement is not for the benefit of employees.

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