8 October 2013 External T.I. 2013-0500511E5 - Withholding on forfeited DPSP 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: What are the withholding tax requirements on forfeited amounts paid out of a deferred profit sharing plan (DPSP) to the employer?

Position: Forfeited amounts are subject to reporting and tax withholding under Part 1 of the Regulations.

Reasons: As required under paragraph 153(1)(h) of the Act.

XXXXXXXXXX
2013-050051
K. Podor

October 8, 2013

Dear XXXXXXXXXX:

Re: Withholding on forfeited amounts from a deferred profit sharing plan (DPSP)

This is in response to your correspondence dated July 23, 2013, wherein you requested confirmation of the requirements imposed under the Income Tax Act (the "Act") to withhold taxes on forfeited amounts paid from a deferred profit sharing plan ("DPSP"). Specifically, you have asked us to consider the withholding tax requirements in relation to a forfeiture payment from a DPSP to the employer in the form of cash.

Under paragraph 147(2)(i.1) of the Act, a forfeited amount must be paid to an employer or reallocated to the beneficiaries under the DPSP on or before the end of the calendar year immediately following the calendar year in which the amount is forfeited.

Where a DPSP pays a forfeited amount to an employer, such an amount would constitute a payment as described by paragraph 153(1)(h) of the Act. Under paragraph 153(1)(h) of the Act, any person who makes a payment under a DPSP in the year shall withhold from the payment, an amount determined in accordance with the prescribed rules and remit the amount to the Receiver General at the prescribed time. The prescribed amount and the prescribed time are set out in Part I of the Income Tax Regulations (the "Regulations").

A payment under a DPSP, other than a payment referred to in subparagraph 147(2)(k)(v) of the Act, is considered a "lump sum payment" for purposes of determining the withholding on the payment. Withholding rates on "lump sum payments" are determined under subsection 103(4) of the Regulations for payments made by an employer to an employee. Subsection 100(1) of the Regulations defines an "employer" for these purposes as any person paying remuneration and defines an "employee" as any person receiving it. Therefore, the XXXXXXXXXX is required to withhold on forfeited amounts made to the "employee".

Subsection 200(1) of the Regulations requires the payer to report the forfeited amount paid out of the plan to the employer on a T4A, "Statement of pension, retirement, annuity and other income", slip. For more information regarding T4A reporting, we refer you to guide RC4157, "Deducting income tax on pension and other income and filing the T4A slip and summary", available at the following link on the CRA website: http://www.cra-arc.gc.ca/E/pub/tg/rc4157/rc4157-12e.pdf.

We trust these comments are helpful.

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