6 June 2006 External T.I. 2006-0180081E5 - EPSP minimum contribution

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.

Principal Issues: In a situation in which an employer proposes to establish an employee savings plan wherein the employee can decide whether the employer contribution will be made to an EPSP or to an RRSP, does the minimum employer contribution requirement apply when the employee chooses to direct the employer contribution to the RRSP?

Position: Although we would question whether a valid EPSP has been established, the minimum employer contribution requirement always applies.

Reasons: By definition, an EPSP is an arrangement under which payments are required to be made by the employer to a trustee under the arrangement. As such, where the employee can require the employer to remit the payment to a different arrangement (here, an RRSP), the foregoing requirement will not have been met.

XXXXXXXXXX 							2006-018008
								Renée Shields
(613) 948-5273
June 6, 2006

Dear XXXXXXXXXX:

Re: Minimum contribution requirement for employee profit sharing plan ("EPSP")

This is in response to your electronic correspondence of April 6, 2006 inquiring whether an employer must make a minimum contribution to an EPSP in a particular situation.

The situation outlined in your letter appears to relate to a factual one, involving a specific taxpayer. It is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. For more information about how to obtain a ruling, please refer to Information Circular 70-6R5, "Advance Income Tax Rulings, dated May 17, 2002. This Information Circular and other CRA publications can be accessed on the internet at http://www.cra-arc.gc.ca. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office ("TSO") for their views. A list of TSOs is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following general comments, which may be of assistance.

You have described a general scenario in which an employee savings plan provides for employer contributions from profits in accordance with a schedule. On an annual basis, each employee can decide whether he or she would like this employer contribution made to a registered retirement savings plan ("RRSP") or to an EPSP. Subsection 144(1) of the Income Tax Act (the "Act") defines an EPSP to be "an arrangement ... under which payments are required to be made by the employer to a trustee under the arrangement." In our view, the fact that the plan described permits the employee to direct the employer to remit its contribution to an arrangement other than the EPSP would suggest that a valid EPSP will not have been established.

Notwithstanding the foregoing position, we can confirm that where a valid EPSP is established, the requirement for a minimum employer contribution as described in ¶6 - 9 of Interpretation Bulletin IT-280R, "Employees Profit Sharing Plans - Payments Computed by Reference to Profits" will always apply.

We trust that these comments will be of assistance.

Yours truly,

John Oulton, CA
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch