11 July 2013 External T.I. 2013-0480911E5 - Excess EPSP amount

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: 1. Whether an excess EPSP amount is considered compensation for RPP purposes. 2. Are contributions/allocations after March 29, 2012, subject to withholdings?

Position: 1. Question of Fact 2. No

Reasons: 1. The excess EPSP amount may be viewed as compensation as it applies to an RPP, however, subject to other conditions, pension benefits provided must be in respect of eligible services as employees. It is a question of fact whether a particular recipient has "eligible service". 2. It is currently the CRA`s view that income tax, CPP and EI withholdings are not required.

XXXXXXXXXX
2013-048091

July 11, 2013

Dear XXXXXXXXXX:

Re: Excess EPSP Amount

This is in response to your question and further to our telephone conversation of July 9, 2013 regarding whether an allocation from an Employees Profit Sharing Plan ("EPSP") that is an "excess EPSP amount", as defined in subsection 207.8(1) of the Income Tax Act (the "Act"), qualifies as compensation under the Act for registered pension plan (RPP) purposes. You also enquire whether an employer is required to withhold source deductions on contributions allocated to an employee after March 29, 2012.

In the situation you describe, a Canadian Controlled Private Corporation ("CCPC") intends to make a post March 29, 2012 EPSP contribution that will be allocated to an employee under the EPSP pursuant to section 144 of the Act. The employee's only remuneration from the CCPC is from the EPSP.

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 income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where a particular transaction has already been completed, a review of the relevant facts and circumstances surrounding the situation would be required. Such review would normally be conducted by the applicable Tax Services Office during the course of an income tax audit which, if undertaken, would be carried out after the particular taxpayer has prepared and filed its income tax return for the year. We are, however, prepared to offer the following general comments, which may be of assistance.

The term "compensation" is defined in subsection 147.1(1) of the Act for purposes of a RPP. Pursuant to paragraph (a) of that definition, compensation of an individual from an employer includes amounts in respect of an individual's office or employment that are required (or would be required but for paragraph 81(1)(a) as it applies with respect to the Indian Act) by section 5 or 6 to be included in computing income for the year, except for certain excluded amounts. As such, it is our view that amounts allocated to an individual under an EPSP and that are included in the individual's income pursuant to 6(1)(d) of the Act, would meet the definition of compensation under the Act. This position would not change where a deduction is taken under paragraph 8(1)(o.2) of the Act, in respect of an excess EPSP amount.

However, subsection 147.1(11) of the Act sets out situations which may lead to revocation of a pension plan's registration including where, at any time after registration, the plan does not comply with the conditions prescribed by regulation. Pursuant to paragraph 8502(a) of the Income Tax Regulations (the "Regulations"), the primary purpose of every RPP must be to provide retirement benefits to individuals in respect of their service as employees. Therefore, despite the fact that an amount may be viewed as compensation in the year it was allocated under the EPSP, it would still be a question of fact whether any pension benefits provided, pursuant to the Regulations, are in respect of services rendered as employees for the particular year.

Where amounts allocated under an EPSP are included in income under paragraph 6(1)(d) of the Act, it is currently the Canada Revenue Agency`s (CRA) view that withholding of income tax pursuant to paragraph 153(1)(a) of the Act is not required. Concerning withholding CPP and EI premiums, we would refer you to the chart on the CRA website at: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/clcltng/spcl/pychrt-eng.html.

We trust these comments will be of assistance to you.

Yours truly,

Lita Krantz CPA, CA
for Director,
Deferred Income Plans, Section II
Financial Industries and Trust Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch