4 July 1989 Administrative Letter 58156 F - Employee Benefit Plan

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.

July 4, 1989

Dear Sir:

Re: Employee Benefit Plan ("EBP")

This is in reply to your letter of May 25, 1989 wherein you requested our comments on the taxation of payments out of an EBP to a resident of the United States.

It is your view that EBP payments will qualify as periodic pension payments for purposes of the Canada-United States Income Tax Convention (the "Convention") if the EBP has been set up as an unregistered pension plan and no portion of the employer's contributions relates to deferred compensation. You conclude that in accord with Article XVIII of the Convention, payments out of this type of EBP should be subject to a 15% withholding tax and that the provisions of paragraph 153(1)(a) of the Income Tax Act (the "Act") and Part 1 of the Income Tax Regulations (the "Regulations") will be restricted in their application.

The taxation of benefits out of pension plans and EBP's is based on several factors which include the place of residence of the beneficiary both at the time contributions are made to a plan and at the time of receipt of benefits, and the country where the employee's employment services were rendered. The taxation of such plans is also dependent upon their date of creation. That is, if a plan has been entered into since October 8, 1986, or is an older plan which has been amended since that date, it may be a Retirement Compensation Arrangement (an "RCA") for taxation purposes. For a discussion of the taxation of RCA's, the Department which may be of assistance to you.

For purposes of Canadian taxation it is our opinion that, in general, payments made to a non-resident out of an EBP into which contributions had been made at a time when the recipient was resident and employed in Canada, will be income from employment subject to the provisions of paragraph 115(1)(a) of the Act and Article XV of the Convention.

We trust these comments are satisfactory to your needs.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate