28 August 1997 External T.I. 9627175 - AMOUNTS PAID TO INDIAN EMPLOYEE IN LIEU OF CPP

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:

The situation is that an employer has both tax-exempt Indian employees and taxable employees. For exempt employees, the employer will not elect to have CPP coverage. However, if an exempt employee files an election himself, the employee must pay both the "employer's" and the "employee's" share. The employer wants to reimburse such employees for the "employer's" share.

1.Will such reimbursement constitute a deemed election by the employer to have its employees contribute to CPP?

2.Will such reimbursement constitute employment income to the employee?

3.Will such reimbursement be deductible to the employer?

4.Will such reimbursement be considered "salary, wages or other remuneration" for purposes of subsection 78(4) of the ITA?

Position:

1.No.

2.Yes.

3.Yes.

4.Yes.

Reasons:

1.Any such reimbursement would be extraneous to the scope of the CPP.

2.Per ITA 5(1), a taxpayer's income from an employment is the salary, wages and other remuneration received by the taxpayer in the year. Per ITA 6(1)(a), the value of benefits received by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment is included in the taxpayer's income.

3.The payment relates to services provided by the employee.

4.Since the amount is "salary, wages or other remuneration" that pertains to a particular year, ITA 78(4) will apply if the amount is not paid within 180 days of that particular year's year-end.

                                            		962717
XXXXXXXXXX	                                 	J.D. Brooks

Attention: XXXXXXXXXX

August 28, 1997

Dear Sirs:

Re: Amounts Paid to Indians in lieu of CPP Deductions

This letter is in reply to your letter of August 13, 1996 in which you requested our opinion concerning the consequences of an employer paying to Indian employees an amount equivalent to the amount of CPP that the employer would have had to contribute if the employees were not tax exempt or if an election was filed by the employer (form CPT124) to contribute to the CPP. We apologize for the delay in replying.

Our Comments

The first question you raised was dealt with in a letter (M-002) dated November 4, 1996 from Pierre Paquette of the CPP/UI Eligibility Division of the Assessment and Collections Branch. Accordingly, we have considered your remaining three questions. We note that it was concluded in Mr. Paquette's letter that any agreement made between an employer and an employee regarding the funding of payments of contributions by the Indian is extraneous to the scope of the Canada Pension Plan.

It is our view that the amounts of "reimbursement" which will be paid to qualifying employees will constitute employment income in the hands of those employees. If an amount is not paid within 180 days after the employer's year-end of the taxation year in which the expense was incurred, subsection 78(4) of the Income Tax Act will apply to deem the amount not to have been incurred as an expense in the year but to be incurred as an expense in the taxation year in which the amount is paid.

We trust that these comments will be of assistance.

Yours truly,

R. Albert
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch