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: Whether a restructure among associated corporations would successfully result in not having each of the corporations contribute to the Canada Pension Plan in respect of compensation paid to the owner/manager of the corporations.
Position: Yes. However, there may be adverse tax consequences.
Reasons: The corporations would have to show that the management fees for services provided were reasonable.
XXXXXXXXXX 2001-011513
J. E. Grisé
January 29, 2002
Dear XXXXXXXXXX:
Re: Canada Pension Plan Contributions
This is in reply to your letter of December 10, 2001, requesting a technical interpretation on a proposal that would have the effect of reducing the Canada Pension Plan (the Plan) contributions required by associated corporations in respect of bonuses paid to the owner/manager of the corporations.
Your proposed course of action would have the associated corporations paying a management fee to a designated associated corporation in lieu of each corporation paying a bonus to the owner/manager. The management fee would be equal to the profit otherwise earned by each corporation. The designated corporation would then pay a bonus to the owner/manager equal to the management fees received from the associated corporations.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R4, dated January 29, 2001. Where the particular transactions are completed, the enquiry should be addressed to the relevant tax services office. Therefore, we can only provide you with the following general comments.
Since the owner/manager would only be in receipt of employment income from the designated corporation, only that corporation would be required to make Canada Pension Plan contributions in respect of the owner/manager. However, it will always be a question of fact whether a management fee based on the payer's profit otherwise earned, is reasonable. Accordingly, we offer no comments as to whether any of the intercorporate management fees or the bonus to the owner/manager, are reasonable in the situation outlined.
We hope our comments are helpful.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
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