29 November 1995 External T.I. 9526615 - EMPLOYEE BENEFIT PLANS

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:

Conditional repayments out of an EBP by the employer

Position:

General position on trustee EBP,no position given on custodial EBPs

Reasons:

1985 Round Table question, IT-502, ITA

XXXXXXXXXX							5-952661

Attention: XXXXXXXXXX

November 29, 1995

Dear Sirs:

Re: Technical Interpretation - Employee Benefit Plans

This is in reply to your letter of October 6, 1995 in which you request a technical interpretation regarding the issue relating to employee benefit plans ("EBP"), as defined in Section 248(1) of the Income Tax Act (the "Act").

The situation described in your letter is an actual fact situation and written confirmation of the tax implications inherent in proposed transactions are given by this Directorate only where the transactions are the subject of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R2.

In order to properly determine the tax consequences of your transaction we would need to look at the EBP agreement and the relationship between the custodian and the employer and employee group. A similar issue was looked at with respect to employer contributions to an EBP which was a trust at the 1985 Canadian Tax Foundation round table questions. In question 28 the question and answer was as follows:

Question

What is the Department's view of the following:

"(1) a plan under which the employee is the capital beneficiary and the employer is the income beneficiary with the employer being obligated to increase capital contributions in subsequent years by the amount of income received in that year;"

Department's Position:

"(1) In order to be recognized as an income beneficiary, the employer must have unrestricted right, title, and use of the income allocated to the employer. A payment that is conditional upon its repayment to the trust would not be accepted as a bona fide payment by the trust; therefore it is the Department's position that such income should be taxed in the hands of the trust and not in the hands of the employer."

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch