Income Tax Severed Letters - 2005-10-14


2005 Ruling 2004-0106481R3 - Employee benefit plan-Shares

Unedited CRA Tags
248(1) 6(1) 104 32.1
dividends received by employee benefit plan trust on shares of non-resident parent deemed by s. 104(22) designation to be income form a source in a country other than Canada

Principal Issues: Will the plan be an EBP, SDA, RCA or section 7 arrangement?

Position: We ruled that the plan will be an EBP to the extent the provisions of the plan provide for the employer to make contributions to a trust which then acquires shares on the open market to be distributed to the employees. The plan will not be an EBP to the extent it provides for the distribution of shares directly to employees. The plan will not be an SDA.

Reasons: The plan provides that it is for the purpose of providing shares to employees and that employers may provide these shares directly to the employees. However, the ruling request sets out that the employer will not follow these rules for employees that are subject to Canadian taxation and will instead contribute an amount to a trust which will use the funds to acquire shares on the open market. We accepted that the plan represents a complex arrangement and that the Canadian trust provisions constituted an EBP that is a distinct part of that arrangement. The EBP and the plan as a whole are both designed to allow employees to acquire shares of the employer with cash incentives/assistance provided by the employer and not to allow the deferral of taxation of a deferred amount. Hence neither the arrangement as a whole nor the EBP is an SDA.