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:
In certain employment situations, employees will elect to have their employers reduce their income and contribute an amount equal to the reduction to an American “401(k)” plan. Is the employee’s income from employment computed before or after this reduction is made?
Position:
The employees’ gross income must be reported.
Reasons:
The Department has historically maintained the position that the employees’ income must be reported prior to the reduction and that the reduction actually reflects a non-deductible employee contribution to the plan. This position forms the best fit with the overall intention of the Act with respect to tax assisted savings for retirement. This position has been upheld in two cases dated February 13, 1998 as noted below.
May 27, 1998
Halifax Taxation Services Office Headquarters
D. Gibson, Director W. C. Harding
(613) 957-8953
Attention: Joe Gillis
980056
XXXXXXXXXX 401(K) Plan
This is in reply to your memorandum of January 5, 1998 with respect to the above noted file.
We have reviewed the documentation submitted with your memo and the comments of XXXXXXXXXX and have also reexamined the provisions of the U.S. Internal Revenue Code and Regulations concerning qualified cash or deferred arrangements (401(k) plans). Based on this review our opinion is that the position expressed in our memorandum to you dated February 13, 1997 (our file 964233) is valid.
We also determined that on February 13, 1998, two decisions were handed down by the Tax Court of Canada which fully support our position. These were S. Bussey v The Queen (1998) 147 ETC and A. Kamil v The Queen (1998) 148 ETC. Copies of these are included for your review.
At your request, Mr. Wayne Harding of our office phoned XXXXXXXXXX on May 25, 1998, to discuss our views. XXXXXXXXXX was not available at the time of the call and a voice message was left outlining our position and the support for it. XXXXXXXXXX has not returned our call.
Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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