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.
Principal Issues: Will a grant from a U.S. charity with the purpose of providing XXXXXXXXXX financial assistance to employees due to XXXXXXXXXX be considered a taxable employment benefit, or otherwise be included in income?
Position: Favourable ruling provided.
Reasons: Although it is a question of fact whether assistance provided is in respect of a taxpayer's employment, social assistance, etc., it is our administrative position not to include such payments in a taxpayer's income.
XXXXXXXXXX , 2011
Dear XXXXXXXXXX :
Re: Advance Income Tax Ruling
We are responding in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the taxpayers referred to above. We also acknowledge the additional information provided in your letter of XXXXXXXXXX .
We understand that to the best of your knowledge and that of the taxpayers on whose behalf this ruling is being requested, none of the issues involved in this ruling request is:
i) dealt with in an earlier return of the taxpayers or related persons;
ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayers or related persons;
iii) under objection by the taxpayers or related persons;
iv) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired; or
v) the subject of a ruling previously considered by the Income Tax Rulings Directorate.
In this letter, unless otherwise expressly stated, the following terms have the meanings specified hereunder:
a) "Act" means the Income Tax Act, R.S.C. 1985 (5th Suppl.) c.1, as amended to the date hereof, and unless otherwise stated, a reference herein to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act and the regulations thereunder are referred to as the "Regulations";
b) "Active Employee" means a person listed on the payroll system of a Corporate Entity as active and who worked at a Corporate Entity in the last 60 days or is on an approved leave of absence;
c) "Canadian Branch" means USCo's Canadian branch operations;
d) "Canadian Employees" means employees of Canco and employees of USCo who exercise their employment in Canada at USCo's Canadian Branch;
e) "Canco" means XXXXXXXXXX ;
f) "Corporate Entities" means Canco, together with USCo Parent and USCo Parent's direct and indirect wholly-owned subsidiaries;
g) "CRA" means Canada Revenue Agency;
h) "Eligible Employee" means Active Employees who are full-time or part-time assistant managers and lower level personnel who are eligible for grant assistance from the Fund;
i) "Employees" means employees of the Corporate Entities;
j) "Foundation" means the XXXXXXXXXX ;
k) "Fund" means XXXXXXXXXX ;
l) "IRS" means the United States Internal Revenue Service;
m) "Non-Canadian Employees" means Employees other than Canadian Employees;
n) "Paragraph" means a numbered paragraph in this advance income tax ruling;
o) "Program" means the administrative process required to be updated or amended in order to facilitate the issuing of grants by the Fund to Canadian Employees;
p) "U.S." means the United States of America;
q) "USCo" means XXXXXXXXXX ; and
r) "USCo Parent" means XXXXXXXXXX .
Unless otherwise indicated in this letter, all dollar amounts referred to herein are in Canadian dollars.
Our understanding of the Facts, Proposed Transactions and the Purpose of the Proposed Transactions is as follows:
1. The Fund was incorporated on XXXXXXXXXX as a non-profit corporation under the laws of the State of XXXXXXXXXX .
2. The Fund is recognized by the IRS as a tax-exempt public charity under section 501(c)(3) of the Internal Revenue Code.
3. The Foundation is a U.S. resident corporation that is recognized by the IRS as a tax-exempt private foundation under section 501(c)(3) of the Internal Revenue Code. The Foundation generally uses its funds to support charitable organizations in the U.S. The principal objectives of the Foundation are to XXXXXXXXXX . The Foundation is separate and distinct from the Fund, but has made contributions to the Fund (as described in Paragraphs 7 and 13 below).
4. USCo Parent is a U.S. resident corporation. Its shares are publicly listed on the XXXXXXXXXX Stock Exchange.
5. USCo is a U.S. resident corporation. USCo is an indirect wholly-owned subsidiary of USCo Parent. USCo carries on business in Canada through a Canadian Branch. USCo carries on business only in Canada and the majority of its employees are residents of Canada for purposes of the Act. USCo's principal business consists of XXXXXXXXXX .
6. Canco is a Canadian resident corporation. Its shares are owned by XXXXXXXXXX , a Canadian citizen who is an officer of XXXXXXXXXX , a wholly-owned subsidiary
of USCo Parent. Canco owns and operates XXXXXXXXXX in the province of XXXXXXXXXX .
7. The initial contributors to the Fund were Non-Canadian Employees and the Foundation. The initial contributors are not, and have never been, involved in the day-to-day operations of the Fund.
8. All members of the Fund's Board of Directors are Non-Canadian Employees.
9. The only purpose of the Fund is XXXXXXXXXX . A grant from the Fund is a one-time lump sum payment to a qualifying Employee in respect of one of the above events.
10. XXXXXXXXXX .
11. Currently, approximately XXXXXXXXXX Non-Canadian Employees and XXXXXXXXXX Canadian Employees qualify as Eligible Employees.
12. The Fund does not maintain any employment information with respect to potential grant recipients nor with respect to any employee. All decisions on grant assistance made by the Fund are made independently of all Corporate Entities.
13. The Fund receives a majority of its contributions from Non-Canadian Employees. On occasion, the Foundation matches gifts (subject to certain dollar limits) that are made from Non-Canadian Employees to the Fund. Contributions made by Non-Canadian Employees are tax deductible in the U.S due to the Fund's charitable status in the U.S. To the date of this ruling, no Canadian Employees have contributed any monies to the Fund.
14. The Fund's Steering Committee is authorized to establish operational guidelines for the Fund. These guidelines set forth the criteria that a grant application must meet in order for an applicant to be eligible for a grant. The application form requests detailed information about the applicant including information concerning the reasons for XXXXXXXXXX and other relevant information. Members of the Fund's Steering Committee are appointed by the Board of Directors of the Fund. All members of the Fund's Steering Committee are Non-Canadian Employees and they represent a broad spectrum of Non-Canadian Employees. Each member has been advised that, when administering the Fund, they are acting as an agent of the Fund, not as an employee of a Corporate Entity.
15. In order to receive a grant from the Fund, an Eligible Employee must complete an application requesting assistance and submit the application to his or her Local Fund Coordinator for purposes of reviewing eligibility and merit. Each Local Fund Coordinator is a Non-Canadian Employee designated by the Fund's Steering Committee. They have been advised that when administering the program, they are acting as agents of the Fund, and not as an employee of a Corporate Entity.
16. Once approved by the Local Fund Coordinator, the grant request is forwarded to the Fund's Executive Director who is responsible for final approval and payment of the grant based on the guidelines established by the Steering Committee and the Board of Directors of the Fund. The signatures of the Local Fund Coordinator and the Fund's Executive Director are required for approval of each grant in order to ensure consistency in the review of applications and to ensure that the Fund's operating procedures are being adhered to. Other than as an initial qualifier, the status of an Employee is not a relevant factor in the Steering Committee's selection process, or in the amount of assistance provided. For greater certainty, an Employee's length of service and performance reviews are not considered in determining whether an amount is granted or the quantum of that grant.
17. Based upon historical information from the Fund's inception on XXXXXXXXXX until XXXXXXXXXX , the average grant to a Non-Canadian Employee was approximately U.S. $XXXXXXXXXX . To date, no grants have ever been made by the Fund to a Canadian Employee.
18. The Fund received a ruling from the IRS that the grants made to Non-Canadian Employees by the Fund are considered non-taxable gifts under U.S. tax law.
19. The Fund proposes to provide grant assistance to Canadian Employees, who XXXXXXXXXX. The decision-making process with respect to determining the amount, if any, of the grant assistance, and the payment of the grants will be done in the same manner, and using the same guidelines as outlined above. The approval process outlined in Paragraphs 15 and 16 above will remain the same for Canadian Employees as it is for Non-Canadian Employees.
20. Each Canadian Employee will be eligible to receive only one grant for a specific situation. The maximum amount available to an employee per circumstance would be $XXXXXXXXXX , including any amount paid by the Fund to match gifts made by employees. In no event will the grant from the Fund (excluding the matching grant) exceed the amount necessary to XXXXXXXXXX .
Purpose of the Proposed Transactions
21. The purpose of the grant assistance proposed to be made by the Fund is to enable the Fund to fulfill its charitable purposes. The articles of formation of the Fund do not contain any geographical limitations, and thus, the Fund may make grants to recipients in the U.S., Canada, and elsewhere.
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions, and the purpose of the Proposed Transactions, and provided that the Proposed Transactions are completed in the manner described in Paragraphs 19 to 20 above, our rulings are as follows:
A. Grant assistance provided to Canadian Employees by the Fund in the manner outlined in Paragraphs 19 and 20 above will not be considered employment income to the employees, and in particular will not be included in their income pursuant to subsection 5(1) or paragraph 6(1)(a) of the Act.
B. Grant assistance provided to Canadian Employees by the Fund in the manner outlined in Paragraphs 19 and 20 above will not be required to be included in income of Canadian Employees under any other provision of the Act.
C. No member of the Corporate Entities will be required to withhold income tax, to file an information return in respect of the grant assistance, or to report the grant assistance on any information return filed pursuant to the Income Tax Regulations.
The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002, and are binding on the CRA provided the Program is implemented before XXXXXXXXXX .
Please note that the above ruling is based on the law as it presently reads and does not take into account any changes in CRA interpretation or policies, or amendments to the Act and the Regulations, which, if enacted, could have an effect on the ruling provided herein.
An invoice for our fees in connection with this ruling request will be forwarded to you under separate cover.
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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