4 November 1994 External T.I. 9427855 - CAPITAL GAINS EXEMPTION IN EPSP

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:

Whether capital gains exemption are applicable to capital gains allocated to beneficiaries of an EPSP which gains are a result of a deemed disposition in accordance with subsection 144(4.2) of the Act.

Position TAKEN:

Yes.

Reasons FOR POSITION TAKEN:

Wording of 144(4.2) and 144(4); proposed amendment of 144(4) for greater certainty that deemed capital gain is a gain on a day and not just for a year which will permit exemptions to be claimed for dispositions (deemed or otherwise) on days on or before February 22, 1994; opinion not changed from previous opinion in 941664.

XXXXXXXXXX 942785

Attention: XXXXXXXXXX

November 4, 1994

Dear Sirs:

Re: Capital Gains Exemption and Shares in an Employees Profit Sharing Plan

This is in reply to your letter of October 25, 1994, and further to our letter of August 5, 1994 (file number 941664), concerning the above-noted topic. You ask whether shares which have been allocated to an employee under an employees profit sharing plan (EPSP) but have not vested prior to February 22, 1994, can be the subject of an election by the trustee under subsection 144(4.2) of the Income Tax Act (the "Act") and, thus, eligible for an employee's capital gains exemption election.

Where a trustee has made the prescribed election under subsection 144(4.2), the trust is deemed to have disposed of the capital property on the date chosen by the trustee for the proceeds selected by the trustee in accordance with paragraphs (c) through (e) thereof. Any capital gain which arises from the deemed disposition must be allocated to the employee and, in accordance with subsection 144(4) of the Act, is deemed to be a capital gain of the employee from the disposition of that capital property for the year in which the capital gain is allocated to the employee.

The Department of Finance announced a proposed amendment to subsection 144(4) of the Act on August 8, 1994, the intent of which is to clarify that any capital gains allocated to an employee are eligible for the lifetime capital gains exemption under section 110.6 of the Act. The amendment provides that, for purposes of section 110.6, the employee shall be deemed to have disposed of the capital property on the same date the trust disposed of it. Thus, where the EPSP trustee elects to have a deemed disposition of capital property and designates February 22, 1994, as the date of disposition, the accrued capital gain allocated to the employee will be eligible for the capital gains exemption.

The foregoing comments are an expression of opinion only and are not binding on the Department. To the extent that they relate to the proposed amendment, the opinion is valid only should the amendment be enacted in the wording as proposed in the August 8, 1994, release.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch