19 May 1992 Ruling 9212813 F - Scholarship Fund

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.

Attention:19(1)

May 19, 1992

Dear Sirs:

Re:24(1)

This is in reply to  your letter of April 14, 1992 in which you requested an advance income tax ruling on the income tax consequences of contributions to the above noted fund, income earned by the fund, and amounts paid out of the fund.  We also wish to acknowledge our telephone conversation on May 9, 1992 in which we obtained clarification on the circumstances of your case.

As indicated in paragraphs 3 and 6 of the enclosed Information Circular 70-6R2, advance income tax rulings are only issued in respect of proposed transactions.  Since the matters on which you requested us to rule relate to a fund that is already established for a certain purpose, we regret that we are unable to provide you with the ruling you requested.  However, we are prepared to provide you with comments which are not binding on the Department.

Our understanding of the facts of your situation are as follows:

24(1) 24(1)

In connection with the questions you have asked, we wish to note that based on the above information provided to us, the Fund, in our view, is an "employee benefit plan" pursuant to the definition of this term in subsection 248(1) of the Income Tax Act (the Act).  The Department's general position on this type of plan is set out in Interpretation Bulletin IT-502 entitled "Employee Benefit Plans and Employee Trusts" and Special Release.  Copies of these publications are enclosed.

Under paragraph 6(1)(g) of the Act, all amounts received out of or under the Fund by a Member, the Member's spouse, or the Member's children would constitute income from an office or employment to the Member in the year received.  For additional comments on the tax results to a Member, you may refer to paragraphs 6 to 15 in IT-502. The tax results to employers who contribute to the Fund involve paragraph 18(1)(o), subsection 18(10) and section 32.1 of the Act. The general effect of these provisions is that, subject to subsection 18(10), employer contributions are not deductible until taxable payments are made out of the capital of the plan.  For comments on the application of these provisions, you may refer to paragraphs 16 to 24 of IT-502.

With respect to the income earned by the Fund, the information you have provided us indicates that the Fund is a trust.  For information concerning the taxability of such a trust, you may refer to paragraphs 26 to 31 of IT-502 of the enclosed bulletin. If you have any further questions concerning income tax returns that are to filed in respect of the Fund or any other questions, you may contact Mr. Doug Klock (Tel. 973-6269) at the North York District Taxation Office. Your deposit of $400 will be refunded to you under separate cover.

We trust our comments will be of assistance to you.

Yours truly,

P.D. Fuocofor DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch