19 December 1994 Internal T.I. 9425946 - DEFERRED PROFIT SHARING PLAN BENEFITS

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.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

DPSP to which employees had contributed and are now withdrawing their contributions and interest thereon; what is nature of withdrawal?

Position TAKEN:

Contribution is tax free; interest is DPSP benefit.

Reasons FOR POSITION TAKEN:

Legislation

			December 19, 1994

	Revenue Collections	Rulings Directorate
	  Programs Directorate
P. M. Paquette	D. Duff
	Acting Chief	(613) 957-8953
	CPP/UI Programs Section
	Source Deductions Division
			7-942594
	Attention: R. Lavigne

Income Security Plan of XXXXXXXXXX

This is in reply to your memorandum of October 7, 1994, requesting our opinion on the nature of certain amounts paid from the Income Security Plan for
XXXXXXXXXX

You have confirmed that the Plan is registered as a Deferred Profit Sharing Plan ("DPSP"). Pursuant to XXXXXXXXXX of the Plan, employees were able to contribute from XXXXXXXXXX% to XXXXXXXXXX% of their wages but, after January 1, 1991, they could no longer make contributions. This change resulted from the introduction of paragraph 147(2)(a.1) of the Act, effective January 1, 1991, that effectively prohibited employees from contributing to a DPSP. Also, pursuant to the Note on page 7 of Information Circular 77-1R4, previously registered DPSPs had to be amended by January 1, 1991, to comply with this provision. Pursuant to the Plan agreement the employee contributions are kept separate from XXXXXXXXXX contributions.

XXXXXXXXXX provides that an employee may withdraw from his fund his own contributions plus earnings thereon, once, during the period form XXXXXXXXXX You were enquiring as to the treatment for Income Tax purposes of these withdrawals.

Subsection 147(10) of the Act requires the recipient to include in income all amounts received in the year from a DPSP, less certain amounts as specified therein. One of these amounts is defined in subsection 147(12) of the Act, which is basically the employee contributions to the DPSP that were not previously withdrawn. Consequently, the amount of the withdrawal representing income earned in the Plan on the employee contributions is included in income as a benefit from a DPSP, while the amount representing the actual contribution is not included in income.

for Director
Financial Industries Division
Rulings Directorate