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: (i) Whether amounts can be paid to an EPSP (and deducted by the employer) after an employee dies; (ii) if so, would the allocation of that payment then be taxable in the deceased employee's final return or taxable to the deceased employee's estate?
Position: (i) Amounts cannot be paid to an EPSP after an employee dies; and (ii) The second question does not need to be addressed.
Reasons: An employer cannot make payments into an EPSP after an employee dies. This is because following the death of an employee, he or she is no longer an "employee of the employer", but would be considered a former employee. Since the first question is answered in the negative, the second question does not need to be addressed.
March 11, 2014
Re: Employee Profit Sharing Plans ("EPSPs")
This letter is in reply to your correspondence of September 6, 2013, concerning whether an employer can make payments into an EPSP after the death of an employee, pursuant to subsection 144(1) of the Income Tax Act (the "Act").
This technical interpretation provides general comments about the provisions of the Income Tax Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.
An EPSP, as defined in subsection 144(1) of the Act, is an arrangement under which payments computed by reference to profits are required to be made by the employer to a trustee under the arrangement for the benefit of the employees of the employer. Subsection 144(10) of the Act permits an employer who makes contributions under the arrangement to elect that payments out of profits be deemed to be payments computed by reference to the employer's profits from the employer's business, provided all of the conditions in subsection 144(1) of the Act are satisfied.
One of the conditions under subsection 144(1) of the Act is that the payments made by the employer are required to be made for the benefit of employees of the employer. In our view, following the death of an employee, he or she is no longer an "employee of the employer", but would be considered a former employee of the employer. Accordingly, an employer cannot make payments into an EPSP for the benefit of deceased or former employees.
We trust that our comments will be of assistance.
Mary Pat Baldwin, CPA, CA
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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