22 February 2002 External T.I. 2001-0114625 - TRUST AS EPSP 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 CCRA.

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

Principal Issues: Can a trust for the benefit of a corporation's employees be a beneficiary of an employee profit sharing plan?

Position: No.

Reasons: The arrangement requires that certain amounts be allocated to employees. These requirements would not be satisfied when an allocation is made to a trust for the benefit of an employee.

XXXXXXXXXX 2001-011462
M. P. Sarazin, CA
February 22, 2002

Dear XXXXXXXXXX:

Re: Beneficiary of an Employee Profit Sharing Plan

This is in reply to your electronic message of December 10, 2001, requesting our views as to whether a trust for the benefit of an employer's employees could be a beneficiary under the employer's employee profit sharing plan ("EPSP").

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. However, we can provide you with the following general comments.

An EPSP is defined in subsection 144(1) of the Income Tax Act (the "Act") as an arrangement under which payments computed by reference to an employer's profit (or the profit from a business of a corporation with which the employer does not deal at arm's length) are made by the employer to a trustee under the arrangement for the benefit of employees of the employer (or of a corporation with which the employer does not deal at arm's length). In addition, subsection 144(1) of the Act requires the trustee, contingently or absolutely:

? to allocate to employees all amounts received by the trustee from the employer (or a corporation with which the employer does not deal at arm's length),

? to allocate to employees all profits from the trust property (computed without reference to capital gains or losses),

? to allocate to employees all capital gains and losses of the trust, and

? to reallocate to employees all amounts previously included in a former beneficiary's income by reason of a contingent allocation to the former beneficiary, where the former beneficiary has forfeited his or her right to the amount contingently allocated and, as a consequence, is deemed by subsection 144(9) to have paid an amount on account of tax under Part I.

The definition of EPSP makes it clear that the arrangement requires the allocation of amounts to employees. Consequently, the employees would have to be the beneficiaries of the EPSP. The EPSP requirements would not be satisfied where amounts are allocated to a trust established for the benefit of employees because the trust would not be an employee of the employer. In our view, the reference to employees in subsection 144(1) is to individuals that are employed by the employer or by a corporation with which the employer does not deal at arm's length. This conclusion is also supported by use of the expression "an employee who is a beneficiary under an employee profit sharing plan" in subsections 144(3) and 144(4) of the Act.

We trust these comments will be of assistance.

Yours truly,

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