20 January 1989 Income Tax Severed Letter 7-3445 - [Profit Sharing/Savings Plan Your File: 8218-8257]

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.

DATE January 20, 1989

TO CALGARY DISTRICT OFFICE Audit Review

FROM HEAD OFFICE Financial Industries Division W.C. Harding 957-3499

Attention: Rick Dillabough

SUBJECT:Profit Sharing/Savings Plan Your File: 8218-8257

This is in reply to your Round Trip Memorandum of October 3, 1988 on the above-noted topic, addressed to our Registration Directorate and referred to us for reply

XXXX

From their arguments we can deduce that they had not expected the plan to be treated as a pension plan for Canadian tax purposes and that:

(a) past plan earnings which may have already been reported, to some extent, as allocations under an employee's profit sharing plan may now be subject to further taxation upon actual withdrawal and/or

(b) plan earnings which, to some extent, were not expected to be taxed in Canada when received by Canadian residents may now be taxed as pension income upon receipt.

The substance of their arguments is that the plan, for Canadian tax purposes is an employee profit sharing plan (EPSP). First, in our opinion the plan could not be an EPSP, as it is now written, as the plan contravenes a number of legislative and administrative provisions dealing with EPSPs. Second, and more importantly, it is our opinion that the position taken on these has been developed with a view to the considerations raised by XXXX and is appropriate in XXXX, circumstances.

Having said this, we must also note, however, that XXXX has not provided any specific detail other than a copy of the plan as it presently exists. Many, if not all, of the Canadian resident employees who are of concern in this issue would have been members of predecessor plans and/or plans which have merged with the present plan. Without knowing the particulars of these plans, and the extent of each employee's involvement therein, we cannot advise, with certainty, whether or not our above-noted positions should properly be maintained in those cases. XXXX should, therefore, be extended the opportunity to re-submit their concerns for the Department's consideration. A resubmission, however, would have to be on an employee by employee basis and would have to include all relevant details, including all plan documents, the particulars of all contributions, allocations made by or for each employee, and the particulars of all amounts distributed out of the plans.

for Director Financial Industries Division Rulings Directorate