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 purchase by employer of group RRSP and DPSP rights to amounts owing under an investment issued by XXXXXXXXXX results in advantage or benefit to annuitants/members, appropriation of property by employer, or surrender or assignment of interests or rights under RRSPs or DPSP.
Position:
No.
Reasons:
Purchase at fair market value by employer does not offend RRSP or DPSP provisions in Act relating to advantages or benefits or employer appropriation and does not constitute surrender or assignment of rights.
XXXXXXXXXX 960498
Attention: XXXXXXXXXX
XXXXXXXXXX, 1996
Dear Sirs:
Re: Advance Income Tax Ruling
XXXXXXXXXX
This is in reply to your letters of XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above-noted taxpayers, and further to our telephone conversations and voice mail messages of XXXXXXXXXX.
To the best of your knowledge, none of the issues involved in this ruling application is being considered by a Tax Services Office or a Taxation Centre in connection with any tax return already filed and none of such issues is under objection.
Except as otherwise noted, all statutory references in this ruling application are references to the provisions of the Income Tax Act (the "Act").
Our understanding of the statements of facts and proposed transactions is as follows:
FACTS
1.XXXXXXXXXX is a taxable Canadian corporation for the purposes of the Act. XXXXXXXXXX
2. XXXXXXXXXX and their affiliates (collectively referred to herein as "XXXXXXXXXX") established the XXXXXXXXXX for the benefit of their employees. The Savings Plan consists of two components, one relating to employee contributions to registered retirement savings plan and the other a non-tax sheltered savings arrangement (the "Taxable Savings Plan" or "TSP"). The DPSP, registered retirement savings plan component and TSP are referred to herein collectively as the "Plans". Each employee who contributes under the registered retirement savings plan component enters into an individual retirement savings plan which is individually registered under the Act (an "RRSP") and to which the employee's contributions under the Savings Plan are made. The term "Participant" shall herein mean the DPSP, and those individual RRSPs and employee members of the Taxable Savings Plan who invest in the XXXXXXXXXX.
3.Copies of trust agreements and plan documents governing the various Plans were attached to your ruling request and the relevant particulars are as follows:
(a) DPSP Trust Agreement
(i)XXXXXXXXXX provides that all money and other property contributed under the DPSP and profits therefrom are to be held by the trustee and constitute the "Trust Fund" (the trust fund governed by the DPSP).
(ii)XXXXXXXXXX provides the trustee with various powers to sell, convert, convey or otherwise dispose of property in the Trust Fund and generally to act as owner; and to make, execute and deliver deeds, leases, contracts, releases or other instruments in writing, necessary for the accomplishment of any of the powers mentioned in the clause.
(iii)XXXXXXXXXX provides that the powers mentioned in XXXXXXXXXX are to be exercised such that the Trust Fund is initially composed of two different asset groups and the trustee may invest, as directed by the employee (see (b)(ii) below), in one of the groups known as the XXXXXXXXXX (see 4 below).
(b) DPSP Plan Document
(i)XXXXXXXXXX provides that contributions made by employees (called "Members" in the DPSP Plan Document) and allocated to the XXXXXXXXXX are to be maintained.
(ii)XXXXXXXXXX provides that company contributions are allocated first to cover expenses and second to accounts for Members; and XXXXXXXXXX provides that if the Member is over 50, the Member may elect to transfer the account to a XXXXXXXXXX provides that if the Member is over 50 the Member may elect to invest all or any portion of the Member's share of company contributions in the XXXXXXXXXX which will be credited to a XXXXXXXXXX This term of the DPSP is relevant for the investment by the DPSP trustee as described in (a)(iii) above.
(iii)XXXXXXXXXX provides that all monies paid to the Plan may be invested or reinvested by the trustee in accordance with the Trust Agreement (see 3(a) above) and all income received, capital gains and capital losses, and expenses with respect to any investment shall be allocated to the appropriate account for each Member at the close of each quarter in proportion to each account's share of the Trust Fund.
(iv)XXXXXXXXXX provides that, except as otherwise provided by applicable law, the interest or property rights of any person in the DPSP, in the Trust Fund, or in any distribution to be made shall not be subject to option, nor assignable, either by voluntary or involuntary assignment.
(v)XXXXXXXXXX provides that no payment or distribution out of the Trust Fund shall be made by way of loan or other form of benefit to any member other than a benefit or loan permitted by paragraph 147(2)(k.1) of the Act.
(c) Savings Plan
(i)XXXXXXXXXX defines "balance" with respect to an XXXXXXXXXX as, generally, the amount of cash credited; it also defines "RRSP" as the registered retirement savings plan established by the Savings Plan trustee for an eligible employee (called "Member" in the Savings Plan) under the Savings Plan. The definition of RRSP by reference makes the applicable contract between the Member and the trustee (see 3(d) below), part of the Savings Plan.
(ii)XXXXXXXXXX provides that Members' contributions may be invested in various funds including the XXXXXXXXXX
(iii)XXXXXXXXXX provides that Members' contributions are to be paid to the trustee to be held, invested and reinvested in accordance with the Savings Plan Trust Agreement, the applicable contract between the Member and the trustee pertaining to the Member's RRSP accounts, the RRSP trust agreement, if applicable, and the Act.
(iv)XXXXXXXXXX provides that all RRSP's established under the Savings Plan shall be administered by the issuer of the RRSP.
(v)XXXXXXXXXX provides that except as otherwise provided by applicable law, the interest or property rights of any person in the Savings Plan, in the trust fund, or in any distribution to be made under the Savings Plan shall not be subject to option nor assignable, either by voluntary or involuntary assignment.
(d) RRSP Declaration of Trust
(i)XXXXXXXXXX provides that contributions to the RRSP shall be invested and reinvested as directed by the annuitant; that income received by the trustee from any investments shall be reinvested in the same investments from which it was derived; that the trustee may sell any investments and may replace same upon receipt of directions from the company acting on the annuitant's behalf.
(ii)XXXXXXXXXX provides that any annuity purchased with the property in the RRSP shall by its terms not be capable either in whole or in part of assignment if payable to the annuitant or his spouse.
4.Employees have a number of investment options with respect to the amounts held for them under the Plans. One investment option is XXXXXXXXXX A copy of this XXXXXXXXXX was attached to your ruling request and the relevant provisions are as follows.
(a)XXXXXXXXXX refers to the plans maintained by XXXXXXXXXX which may invest in the XXXXXXXXXX and includes the plan (sic) mentioned in Schedule A which schedule includes the DPSP, and the Savings Plan (i.e. the Taxable Savings Plan and the registered retirement savings plan component).
(b) XXXXXXXXXX agrees in XXXXXXXXXX to permit the acquisition of units of the XXXXXXXXXX from time to time by a plan for cash. XXXXXXXXXX states that the XXXXXXXXXX is divided into units of participation of equal value without priority or preference and that the proportionate interest of each plan in the XXXXXXXXXX at any time consists of the total number of units as determined by XXXXXXXXXX and held for the account of the plan at that time.
(c)XXXXXXXXXX provides that a plan may redeem all or part of the units held for its account on demand effective on any Trade Date (defined as the first business day of XXXXXXXXXX, or such other day, or additional day or days as XXXXXXXXXX may from time to time determine).
(d) XXXXXXXXXX provides that on the Trade Day or, exceptionally, within 15 days of demand for redemption, XXXXXXXXXX shall pay out of the XXXXXXXXXX to a plan, an amount equal to the net asset value of such units (after deduction of any costs and various expenses, if any, relating to the redemption).
(e) XXXXXXXXXX provides that the Aggregate Value of the assets of the XXXXXXXXXX as of a Valuation Date, shall be determined by valuing as of the close of business on such date, the investments held by the XXXXXXXXXX together with the amount of any other assets of the XXXXXXXXXX The net asset value of a unit, as of a Valuation Date, shall be the quotient obtained by dividing the aggregate value of the assets of the XXXXXXXXXX, determined as of that Valuation Date, by the total number of units then outstanding.
(f) XXXXXXXXXX gives XXXXXXXXXX the power to sell, lease, exchange, convey, transfer, pledge or otherwise dispose of any and all property held by it.
(g) XXXXXXXXXX provides that the assets of the XXXXXXXXXX shall at all times be considered as assets held in trust by XXXXXXXXXX as trustee of the XXXXXXXXXX, and no plan shall have individual ownership of any particular asset.
5.The XXXXXXXXXX is a "qualified trust" as that term is defined under subsection 259(5) of the Act and XXXXXXXXXX has made an election pursuant to subsection 259(1) of the Act in respect of the XXXXXXXXXX throughout the period in which any of the Participant's assets were and are invested in units of the XXXXXXXXXX
6.On or about XXXXXXXXXX as trustee of the XXXXXXXXXX acquired XXXXXXXXXX (the "Contract"). In accordance with the terms of the Contract, a copy of which was attached to your ruling request, the
XXXXXXXXXX.
7.Another term of the Contract provides that no assignment of all or part of XXXXXXXXXX rights under the Contract can bind XXXXXXXXXX.
8. XXXXXXXXXX.
9. XXXXXXXXXX.
PROPOSED TRANSACTIONS
10.XXXXXXXXXX proposes to purchase (the "Acquisition") from XXXXXXXXXX as trustee for each of the Participants all or a portion of the proceeds payable in respect of the Contract (the "Contract Proceeds"). The purchase price will be based on the fair market value of the Contract Proceeds. The Acquisition is being structured as an acquisition of an interest in the proceeds payable in respect of the Contract, as opposed to an interest in the Contract itself, to avoid any risk of disturbing the Contract's XXXXXXXXXX.
11.XXXXXXXXXX will purchase that portion of the Contract Proceeds which represents the proportionate interests of the Participants whose employees accept XXXXXXXXXX offer described in 15 below.
12.To determine the fair market value of the Contract Proceeds, XXXXXXXXXX retained XXXXXXXXXX to prepare an independent valuation of the Contract. In accordance with that valuation the fair market value as at XXXXXXXXXX (the "Valuation Date") is determined to be $XXXXXXXXXX (the "Fair Market Value").
13. XXXXXXXXXX the Fair Market Value placed on the Contract by XXXXXXXXXX is an appropriate one and, subject to the completion of the proposed transactions described in 15 below, XXXXXXXXXX proposes, in the interests of Participants with
XXXXXXXXXX.
14. XXXXXXXXXX The difference between the Contract's Face Value and its Fair Market Value is referred to in this letter as its "Shortfall".
15. XXXXXXXXXX.
16. XXXXXXXXXX.
17.XXXXXXXXXX proposes to ask XXXXXXXXXX to update its valuation prior to implementing the Acquisition. The transactions described above will proceed exactly as described with the following changes:
(a)Fair Market Value will be changed to reflect the new valuation placed on the Contract by XXXXXXXXXX
(b)The Valuation Date will be the date of the new valuation; and
(c)The Face Value and the Shortfall will be recalculated to reflect the change in Valuation Date and the results of the new valuation.
PURPOSE OF PROPOSED TRANSACTIONS
18. XXXXXXXXXX.
19.XXXXXXXXXX is served by the XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Taxation Centre. XXXXXXXXXX is served by the XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Taxation Centre.
RULINGS GIVEN
Provided that the statement of facts and proposed transactions are correct and constitute a complete disclosure of all the relevant facts and proposed transactions, we rule as follows:
The Acquisition from the Participants by XXXXXXXXXX of all or a portion of the Contract Proceeds as described in 10 through 14 above, and the payments to Employees on account of the Participant's Proportionate Share of the Shortfall pursuant to an offer as accepted by the Employee as described in 15 above will not constitute:
1.a surrender or assignment, in whole of in part, of a right or interest under the DPSP by an Employee contrary to paragraph 147(2)(e) of the Act;
2. the extension of a benefit contrary to paragraph 147(2)(k.1) of the Act;
3. an appropriation of DPSP property by XXXXXXXXXX contrary to subsection 147(13) of the Act;
4. an assignment, in whole or in part, of retirement income under a registered retirement savings plan as contrary to paragraph 146(2)(c) of the Act;
5. the extension of an advantage contrary to paragraph 146(2)(c.4) and subsection 146(13.1) of the Act.
The above rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R2 dated September 28, 1990, and are binding on Revenue Canada, Taxation, provided that the proposed transactions described herein are completed by XXXXXXXXXX Our rulings are based on the Act in its present form and do not take into consideration any proposed amendments to the Act.
1.As discussed in several telephone conversations (XXXXXXXXXX), we are unable to confirm from your submissions and our analysis of the current law whether the Contract is a "qualified investment" for a registered retirement savings plan as defined in subsection 146(1) of the Act, or a "qualified investment" for a deferred profit sharing plan as defined in section 204 of the Act, or a life insurance policy as described in paragraphs 198(6)(c) through (e) of the Act. Nothing in this ruling should be construed as implying that Revenue Canada, Taxation has agreed that the Contract is such a "qualified investment" or a life insurance policy as described in paragraphs 198(6)(c) through (d) of the Act.
2.Nothing in this ruling should be construed as implying that Revenue Canada, Taxation has agreed to or reviewed the determination of the fair market value of the Contract.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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