2 February 1993 Income Tax Severed Letter 9234687 - Definition of Salary and Wages for M & P Deduction—Multiple Jurisdiction

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

                                        February 2, 1993

HAMILTON DISTRICT OFFICE                Personal and General
Audit SECTION                            Section
Complex Case                            A. Humenuk
                                        (613) 957-2134
Attention: Nick Kroezen

                                        923468

Employee Profit Sharing Plan Allocations

We are replying to your letter of November 13, 1992 concerning the definition of "salary and wages paid" as used in section 404 and 5202 of the Regulations.

You have asked whether the allocation or payment out of an employee profit sharing plan is considered "salary and wages paid" for the purpose of determining the allocation of provincial tax payable for a multiple-jurisdiction corporation and for the purpose of the manufacturing and processing deduction. In our telephone conversation of December 1, 1992 (Kroezen/Humenuk), you point out that the province of Ontario is also using the same definition for the purpose of the Ontario Health Tax. Since this Department is not in a position to offer any comments concerning the calculation of the Ontario Health Tax, any questions received on this topic should be referred to the provincial government.

For the purposes of the Act (except as noted in the definition and unless otherwise defined for the purpose of a particular provision), the term "salary or wages" is defined in subsection 248(1) of the Act to mean the income of a taxpayer from an office or employment as computed under subdivision a of Division B of Part I of the Income Tax Act. You are concerned that this definition appears to be more applicable to the definition of salary and wages from the recipient's point of view than to the payor's point of view.

We respectfully disagree. The definition of "salary or wages" found in subsection 248(1) of the Act applies to payments as well as to receipts. However, in Regulation 402 it is the "salary or wages" paid in the year by the corporation to the employees which is relevant in determining the appropriate ratio for calculating the taxable income of a corporation in a particular province. While an allocation in a taxation year by the trustee under an EPSP is "salary or wages" as defined in subsection 248(1) of the Act, it is not a payment by the corporation to the employees in that year or any other year. Consequently, the trustee's allocation is not used in the calculation of the taxable income earned in a particular province even though the amount is considered salary or wages.

With respect to either the payment by the corporation to the trustee or the payment from the trustee to the employee, neither payment can be characterized as salary or wages in ordinary circumstances since the only amounts connected with an employee profit sharing plan which have the characteristics of salary or wages are those amounts which are taxable by reason of paragraph 6(1)(d) of the Act which in turn, is limited to amounts allocated to the employee (other than capital gains) and to amounts included in an employee's income under subsection 144(7) of the Act.

With respect to your question concerning the calculation of the manufacturing and processing deduction, we draw your attention to the definition of salary and wages as found in Regulation 5202. As noted in this definition, salary and wages for this purpose does not include amounts referred to in section 6 or 7 of the Act. Accordingly, an allocation under an EPSP does not form part of salary and wages for the purpose of calculating the manufacturing and processing deduction.

P.D. Fuoco Section Chief Personal and General Section Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch

c.c. Ed Campbell, Director Provincial and International Affairs

c.c. T2 and T3 programs Division Assessment of Returns Directorate