29 January 1998 External T.I. 9733325 - EPSP ALLOCATIONS TO FORMER EMPLOYEES

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:

	Can an EPSP provide for the allocation of amounts to 	former employees?

Position: No.

Reasons:

The provisions of 144(1) pertaining to the allocation of amounts clearly specify that all amounts must be allocated to employees. We are not of the opinion that the term employee includes former employee as it is used here.

973332
XXXXXXXXXX W.C. Harding

Attention: XXXXXXXXXX

January 29, 1998

Dear Sirs:

Re: Employee Profit Sharing Plan (“EPSP”)
Allocations to former Employees

This is in reply to your letter of December 17, 1997, in which you requested our comments concerning the above-noted topic.

Written confirmation of the tax implications inherent in particular proposed transactions are given by this Directorate only where the transactions are outlined in an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R3. Questions concerning actual fact situations should be directed to your tax services office. Accordingly, since your situation appears to deal with a factual situation, we cannot provide a specific answer to your query. Nevertheless, we can provide the following comments that may be of assistance.

In order for any arrangement to be an EPSP as defined in subsection 144(1) of the Income Tax Act (the "Act"), it must, among others, comply with the provisions of paragraph 144(1)(b) of the definition. This paragraph provides that the trustee of an EPSP must allocate, on an annual basis, all of the amounts described in subparagraphs (i) through (v) thereof, to employees of the employer or of a corporation with which the employer does not deal at arm’s length. Accordingly, it is our opinion that a trustee under an EPSP can not allocate any of these amounts to former employees.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate