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.
March 18, 1992
Registered Plans Division Financial Industries
Stella Kotlar, Director Division
P. Spice
952-9853
Bob Reynolds
7-920067
Subject: "Connected Persons" - Regulation 8500(3)
This is in reply to your memorandum of December 24, 1991, in which you ask us to review a letter of May 29, 1991 from 24(1) (a copy of which was enclosed with your memorandum) concerning the above-noted matter.
24(1) will be submitting a formal application for registration of a pension plan and wishes to know if the Department would view a certain employee as a "person connected with the employer" in the circumstances described in its letter.
24(1)
Subsection 8500(3) of the Income Tax Act Regulations describes which individuals are to be considered connected to an employer. The provisions cited in the 24(1) letter are those contained in paragraphs (a), (d) and (e). We wish to point out that paragraph 8500(3)(b) or (c) might also be relevant to this situation, but we will confine our remarks to those raised by the lawyers.
In accordance with paragraph 8500(3)(e), the nieces and nephews are deemed to
own the shares of Holdco. They, therefore, "indirectly" own the shares of the employer company, and also own the shares of any other "related" corporation (as defined in subparagraph 251(2)(b)(i) of the Act). To apply paragraph (d) it must be determined, therefore, whether the uncle deals at arm's length with the nieces and nephews. If he does not, paragraph (d) deems him to own each share owned by the nieces and nephews and, consequently, he is a person connected with the employer company in accordance with paragraph (a)
Whether an uncle deals at arm's length with his nieces and nephews is a question of fact and there is nothing in the 24(1) letter which convinces us that the intent of the legislation is to exclude this type of situation from its purview. The letter writer states the intent of the legislation is to examine the "ownership entitlement of the employees". The Regulation may refer to ownership of shares in paragraph (a), but it also refers to persons related to shareholders in paragraph (d).
for DirectorFinancial Industries DivisionRulings DirectorateLegislative and IntergovernmentalAffairs Branch
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