19 June 1996 External T.I. 9616625 - EBP AND PENSION ENTITLEMENTS

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:

Are benefits under an EBP compensation for purposes of pension entitlements?

Position:

Yes if included in income under section 6

Reasons:

compensation is amounts from employment and section 6 inclusion is from employment

		961662
XXXXXXXXXX		M.P. Sarazin

Attention: XXXXXXXXXX

June 19, 1996

Dear Sirs:

Re: Employee Compensation

This is in reply to your facsimile dated May 8, 1996, wherein you requested our comments with respect to benefits under an employee benefit plan ("EBP") being included in an employee's compensation for purposes of determining pension entitlements.

Comments

In your letter you have outlined what appears to be an actual fact situation related to a past transaction. The review of such transactions falls within the responsibility of Tax Services offices and it is the practice of this Department not to comment on such transactions when the identities of the taxpayers are not known. However, we can provide you with the following general comments which we hope will be of assistance.

For the purposes of the registered pension plan provisions in the Income Tax Act (the "Act"), compensation is defined in subsection 147.1(1) of the Act to mean the total of all amounts from an employer each of which is an amount in respect of the individual's employment with the employer or an office in respect of which the individual is remunerated by the employer that is required by section 5 or 6 of the Act to be included in computing the individual's income for the year, except such portion of the amount as may reasonably be considered to relate to a period throughout which the individual was not resident in Canada, and is not attributable to the performance of the duties of the office or employment in Canada or is exempt from income tax in Canada by reason of a provision contained in a tax convention or agreement with another country.

The Department's general views with respect to EBP's are expressed in Interpretation Bulletin IT-502 titled Employee Benefit Plans and Employee Trusts. Normally, an employee does not have to include any benefit from an EBP in income until amounts are received out of or under the EBP or until an interest in the EBP is disposed of. All amounts received out of the EBP or as a result of the disposition of an interest in the EBP, other than those described in 6(a), (b) and (c) of IT-502, constitute income from an office or employment under paragraph 6(1)(g) of the Income Tax Act (the "Act"). A copy of IT-502 is enclosed.

Since amounts received out of an EBP are included in income under paragraph 6(1)(g) of the Act, such amounts will constitute compensation for purposes of the registered pension plan provisions. However, employer contributions to an EBP in the year which are not included in the employee's income will not constitute compensation for purposes of the registered pension plan provisions.

We trust the above comments will be of assistance to you.

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

Enclosure