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 subparagraph 8(1)(i)(ii) and 8(1)(i)(iii) expenses deductible against income allocated under an employee profit sharing plan.
Position: Question of fact, provided that all requirements of the subparagraphs and the pre-amble of subsection 8(1) have been met.
Reasons: According to paragraph 6(1)(d) of the Act, a taxpayer must include in income, as income from an office or employment, all amounts allocated to him or her in a year under an EPSP, as provided by section 144 of the Act, except subsection 144(4) of the Act, and all amounts required by subsection 144(7) of the Act to be included in income.
5-982507
XXXXXXXXXX Karen Power, CA
(613) 957-8953
October 14, 1998
Dear XXXXXXXXXX:
Re: Employment Expenses under Subparagraphs 8(1)(i)(ii) and 8(1)(i)(iii)
We are writing in reply to your letter of July 27, 1998 requesting our comments on whether amounts received from an employee profit sharing plan (“EPSP”) as a distribution of employer contributions constitute “employment” for the purpose of subparagraphs 8(1)(i)(ii) and 8(1)(i)(iii) of the Income Tax Act (the “Act”).
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request. The procedures for requesting an advance income tax ruling are outlined in Information Circular 70-6R3 dated December 30, 1996. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments which are of a general nature and are not binding on the Department.
Subsection 8(2) of the Act states that except as permitted by section 8 of the Act, no deductions from employment are permitted. Subsection 8(1) of the Act provides that in computing a taxpayer’s income for a taxation year from an office or employment, the individual may deduct certain amounts as are wholly applicable to that source or such part of these amounts as may reasonably be regarded as applicable thereto. These amounts are described in paragraphs 8(1)(a) through to 8(1)(q) of the Act.
Paragraph 1 of IT-352R2 states that "subparagraphs 8(1)(i)(ii) and (iii) allow a taxpayer, in computing income for a taxation year from an office or employment, to deduct amounts paid in the year as expenses for office rent, supplies and salary to an assistant or substitute. These expenses are deductible provided the following requirements are met:
(a) the taxpayer is required by the contract of employment to pay for such office rent or salary, or to provide and pay for such supplies;
(b) the taxpayer has not been reimbursed and is not entitled to reimbursement for such expenses;
(c) these expenses may reasonably be regarded as applicable to the earning of income from the office or employment; and
(d) in the case of supplies, they are consumed directly in the performance of the taxpayer's duties of the office or employment."
According to paragraph 6(1)(d) of the Act, a taxpayer must include in income, as income from an office or employment, all amounts allocated to him or her in a year under an EPSP, as provided by section 144 of the Act, except subsection 144(4) of the Act, and all amounts required by subsection 144(7) of the Act to be included in income. An amount included in box 35 of form T4PS would be considered income from an office or employment.
In our view, employment expenses described in subparagraphs 8(1)(i)(ii) and 8(1)(i)(iii) of the Act may be deductible against income included under paragraph 6(1)(d) of the Act, if all of the other requirements listed in (a) through (d) above have been met.
You should note, however, that paragraph 6(1)(d) includes in income all amounts allocated under an EPSP. Section 144 of the Act ensures that there is no double taxation on subsequent distributions of property to employees under an EPSP. Subsection 144(6) provides that an amount received by the beneficiary from a trustee under such a plan shall not be included in computing the beneficiary’s income for the year.
We trust our comments will be of assistance to you.
Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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