23 August 1990 Administrative Letter 901466 F - Employees Profit Sharing Plan - Employee Leaving in Middle of the Year

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.

August 23, 1990

Dear Sirs:

Re: Employees Profit Sharing Plan ("EPSP") Section 144 of the Income Tax Act (the "Act")

This is in reply to your letter of June 21, 1990 concerning the above-mentioned subject.

You ask whether a beneficiary of an EPSP must be an employee at the time that the employer makes a contribution to the EPSP on his behalf or is it sufficient that the beneficiary be an employee during the year in which the contributions is made by the employer.  In the situation you describe, a person is an employee of a Canadian employer until June 1990 and is then transferred to the employ of an American affiliate.  The Canadian employer proposes to make a contribution to an EPSP on behalf of this transferred employee later in 1990 or within the first 120 days of 1991.

You point out that an employer will usually contribute to the EPSP at the end of the year or within the first 120 days of the next year when the profits of the company have been determined.  To that extent, it is our opinion that an employer would not be precluded from making a contribution to an EPSP for an employee who leaves his employment in the middle of the year.

It is also our opinion that the trustee of the EPSP could allocate to the transferred employee a share of the earnings of the trust during years after his transfer to an American affiliate of the Canadian company.  Such contribution would constitute Canadian employment income and would be taxable pursuant to subsection 2(3), paragraph 6(1)(d) and section 115 of the Act.

You also enquire as to whether an EPSP can provide benefits for only one employee.  Subsection 144(1) of the Act refers to "employees profit sharing plan" and states that payments are made by an employer "to a trustee in trust for the benefit of officers or employees of the employer...".  The plural of the word employees is to be noted.  It is benefits for more than one employee.

We trust the above comments will be of assistance to you. 

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate