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 non-resident members of a registered pension plan providing services, in Canada, to their foreign employer, be considered "only occasionally employed in Canada" for purposes of subparagraphs 212(1)(h)(v) and (vi) of the Act.
Position: Question of fact.
Reasons: Applying the decision of the courts in the Louis V. Nanne v. The Queen 2000 DTC 1653 (TCC) case, an examination of the number of days the non-resident was employed in Canada, in relation to the total number of days employed with the employer in the year must be made to determine whether a person is "only occasionally employed in Canada", for purposes of subparagraphs 212(1)(h)(v) and (vi) of the Act.
XXXXXXXXXX
2003-003801
XXXXXXXXXX, 2004
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX
XXXXXXXXXX (the "Trustees") XXXXXXXXXX
This letter is in reply to your letters dated XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above-referenced Trustees. We also acknowledge receipt of your letters dated XXXXXXXXXX and the information provided in various telephone conversations (XXXXXXXXXX).
Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the "Act") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.
We understand that, to the best of your knowledge and that of the Trustees, none of the issues involved in the ruling request is:
(i) in an earlier return of the Trustees or a related person,
(ii) being considered by a tax services office or tax centre in connection with a previously filed tax return of the Trustees or a related person,
(iii) under objection by the Trustees or a related person,
(iv) before the courts, nor
(v) the subject of a ruling previously issued by the Directorate, except to the extent that such issues may have been the subject of Advance Tax Ruling XXXXXXXXXX.
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
Facts
1. The XXXXXXXXXX (the "XXXXXXXXXX Plan") XXXXXXXXXX was established effective XXXXXXXXXX by agreement dated XXXXXXXXXX.
2. The XXXXXXXXXX Plan is registered under the Act and in XXXXXXXXXX.
3. The XXXXXXXXXX Plan is a XXXXXXXXXX defined contribution plan. XXXXXXXXXX.
4. XXXXXXXXXX.
5. XXXXXXXXXX.
6. XXXXXXXXXX.
7. Effective XXXXXXXXXX, the only active participants in the XXXXXXXXXX Plan with respect to whom any contributions are made after XXXXXXXXXX are XXXXXXXXXX.
8. Benefits for service prior to XXXXXXXXXX for XXXXXXXXXX under the XXXXXXXXXX Plan are provided through deferred annuity contracts purchased from the XXXXXXXXXX.
9. Effective XXXXXXXXXX, the benefit under the XXXXXXXXXX Plan was amended by introducing new contribution formulae and by changing the funding of the benefits payable under the Plan from funding by way of annuities (i.e., annuity contracts purchased from the XXXXXXXXXX) to funding XXXXXXXXXX under the Plan. Effective XXXXXXXXXX, separate accounts were established which are maintained by the Trustees XXXXXXXXXX for each participating XXXXXXXXXX under the XXXXXXXXXX Plan.
10. Since XXXXXXXXXX, there have been two different benefits under the XXXXXXXXXX Plan: (i) a basic benefit available to all eligible XXXXXXXXXX ("Basic Benefit"), the amount of which is based on XXXXXXXXXX, and (ii) a XXXXXXXXXX benefit available to XXXXXXXXXX who have satisfied certain criteria concerning the XXXXXXXXXX ("XXXXXXXXXX Benefit"), XXXXXXXXXX.
11. XXXXXXXXXX.
12. XXXXXXXXXX.
13. XXXXXXXXXX.
14. All contributions made in respect of the Basic Benefit of XXXXXXXXXX under the XXXXXXXXXX Plan for the period XXXXXXXXXX to XXXXXXXXXX and investment earnings thereon have been allocated XXXXXXXXXX by the Trustees for each participating XXXXXXXXXX. As at XXXXXXXXXX, the total of all assets held XXXXXXXXXX with respect to such Basic Benefits (including investment earnings related thereto) was approximately $XXXXXXXXXX (Canadian).
15. Assets equal to contributions made between XXXXXXXXXX and XXXXXXXXXX in respect of the XXXXXXXXXX Benefit of eligible XXXXXXXXXX and investment earnings thereon are currently held XXXXXXXXXX by the Trustees for each participating XXXXXXXXXX who was or is entitled to a XXXXXXXXXX Benefit. As at XXXXXXXXXX, the total of all assets held XXXXXXXXXX (including investment earnings) was $XXXXXXXXXX (Canadian).
16. XXXXXXXXXX.
17. XXXXXXXXXX.
18. XXXXXXXXXX.
19. The XXXXXXXXXX Plan has been amended to allow each XXXXXXXXXX who does not reside in Canada to elect, subject to applicable pension standards and tax legislation, to transfer to the U.S. XXXXXXXXXX Plan the following benefits, provided that such benefits would be vested under the terms of the U.S. XXXXXXXXXX Plan immediately after the transfer: (i) all assets (including applicable earnings) held in such XXXXXXXXXX's accounts under the XXXXXXXXXX Plan in respect of XXXXXXXXXX (ii) all assets held in such XXXXXXXXXX's accounts equal to contributions relating to service under the XXXXXXXXXX Plan XXXXXXXXXX plus applicable earnings in respect of the Basic Benefit of such XXXXXXXXXX for the period XXXXXXXXXX to XXXXXXXXXX; and (iii) all assets held in such XXXXXXXXXX 's accounts in respect of the XXXXXXXXXX Benefit relating to service with XXXXXXXXXX. Pursuant to the terms of the XXXXXXXXXX Plan, such an election may apply to all or part of such assets and may be made from time to time. Therefore, for example, if a XXXXXXXXXX 's benefits would not currently be vested under the terms of the U.S. XXXXXXXXXX Plan immediately after the transfer, such XXXXXXXXXX may make the election at such future time as the benefits would be vested.
20. During the period XXXXXXXXXX to XXXXXXXXXX, and the period prior to XXXXXXXXXX to which the XXXXXXXXXX Benefit may relate, XXXXXXXXXX resided in Canada or the United States. During such periods, XXXXXXXXXX reported to work at the place of residence of their XXXXXXXXXX.
21. XXXXXXXXXX.
22. The XXXXXXXXXX Plan was established effective XXXXXXXXXX pursuant to the agreement of the XXXXXXXXXX, and the individual trustees XXXXXXXXXX to provide retirement benefits to XXXXXXXXXX employed by U.S. XXXXXXXXXX.
23. The XXXXXXXXXX Plan is not registered in Canada, but is intended to be a money purchase pension plan that meets the requirements of a qualified plan under Section 401(a) of the Code. The trust which forms part of the U.S. XXXXXXXXXX Plan was created and organized in the U.S. and is intended to be a tax-exempt domestic trust under Section 501(a) of the Code. The U.S. XXXXXXXXXX Plan is subject to ERISA and is a "XXXXXXXXXX" as defined in XXXXXXXXXX. The U.S. XXXXXXXXXX Plan is XXXXXXXXXX.
Proposed Transactions
24. On request by eligible individual XXXXXXXXXX, the Trustees intend to transfer to the U.S. XXXXXXXXXX Plan: (i) assets and liabilities relating to contributions made under the XXXXXXXXXX Plan in respect of the Basic Benefits of such XXXXXXXXXX for service with a U.S. XXXXXXXXXX during the period XXXXXXXXXX to XXXXXXXXXX and investment earnings thereon; (ii) assets and liabilities in respect of the XXXXXXXXXX Benefits of such XXXXXXXXXX for service with a U.S. XXXXXXXXXX; and (iii) the XXXXXXXXXX. Subject to applicable pensions standards legislation, such assets will be transferred to the U.S XXXXXXXXXX Plan provided: (a) a participant who is not currently resident in Canada elects to have such assets which are held on his behalf transferred to the U.S. XXXXXXXXXX Plan subject to withholding tax under section 212 of the Act (as may be reduced by the Canada-U.S. Tax Convention, (1980), ("Canada/U.S. Tax Treaty") or such other tax treaty as may be applicable; or (b) a participant elects to have such assets which are held on his behalf transferred to the U.S. XXXXXXXXXX Plan and such participant can certify to the Trustees that for purposes of the Act and the Canada/U.S. Tax Treaty or such other tax treaty as may be applicable: (i) he was not resident in Canada for the taxation years to which the benefits relate or a portion thereof, and (ii) was not employed in Canada or was only occasionally employed in Canada during such period or such portion thereof, and (iii) is not currently resident in Canada such that assets held on his behalf can be transferred to the U.S. XXXXXXXXXX Plan without reduction for withholding tax under section 212 of the Act (as may be reduced by the Canada/U.S. Tax Treaty or such other tax treaty as may be applicable).
25. The Trustees propose to transfer to the U.S. XXXXXXXXXX Plan, in accordance with 27, only those benefits that would be vested under the terms of the U.S. XXXXXXXXXX Plan immediately after the transfer.
26. XXXXXXXXXX.
27. The participants will be given notice of their right to elect to transfer assets to the U.S. XXXXXXXXXX Plan from time to time. Subject to applicable pension standards legislation, the assets currently held under the XXXXXXXXXX Plan in respect of a XXXXXXXXXX service with U.S. XXXXXXXXXX will be transferred as follows (in each case set out below, a certification of residency and employment by the XXXXXXXXXX will be required for each relevant taxation year):
a) the portion of the assets currently held under the XXXXXXXXXX Plan related to contributions made for one or more taxation years during the period XXXXXXXXXX to XXXXXXXXXX and investment earnings thereon in respect of the vested Basic Benefit of XXXXXXXXXX who were not resident in Canada and not employed in Canada or only occasionally employed in Canada throughout the corresponding taxation years will be transferred to the U.S. XXXXXXXXXX Plan provided the applicable XXXXXXXXXX is not currently resident in Canada and makes a valid election in respect of such transfer as set out above;
b) the portion of the assets currently held under the XXXXXXXXXX Plan related to contributions made for one or more taxation years during the period XXXXXXXXXX to XXXXXXXXXX and investment earnings thereon in respect of the vested Basic Benefit of XXXXXXXXXX who were resident in Canada and/or employed in Canada or more than occasionally employed in Canada in each relevant year or a portion thereof will be transferred to the U.S. XXXXXXXXXX Plan, provided the applicable XXXXXXXXXX is not currently resident in Canada and makes a valid election in respect of such transfer as set out above;
c) the portion of the assets currently held under the XXXXXXXXXX Plan related to the portion of the XXXXXXXXXX for one or more taxation years during the period of service to which the benefit relates for XXXXXXXXXX who were not resident in Canada and not employed in Canada or only occasionally employed in Canada throughout such taxation year(s) will be transferred to the U.S. XXXXXXXXXX Plan, provided the applicable XXXXXXXXXX is not currently resident in Canada and makes a valid election in respect of such transfer as set out above;
d) the portion of the assets currently held under the XXXXXXXXXX Plan related to the portion of the XXXXXXXXXX for one or more taxation years during the period of service to which the benefit relates for XXXXXXXXXX who were resident in Canada and/or employed in Canada or more than occasionally employed in Canada throughout such taxation years will be transferred to the U.S. XXXXXXXXXX Plan, provided the applicable XXXXXXXXXX is not currently resident in Canada and makes a valid election in respect of such transfer as set out above;
e) the portion of the assets and investment earnings thereon currently held under the XXXXXXXXXX Plan in respect of the XXXXXXXXXX Benefit allocated to XXXXXXXXXX accounts on or before XXXXXXXXXX in respect of one or more taxation years during the period of service to which the benefit relates for XXXXXXXXXX who were not resident in Canada and not employed in Canada or only occasionally employed in Canada throughout the corresponding one or more taxation years will be transferred to the U.S. XXXXXXXXXX Plan provided the applicable XXXXXXXXXX is not currently resident in Canada and makes a valid election in respect of such transfer as set out above;
f) the portion of the assets and investment earnings thereon currently held under the XXXXXXXXXX Plan in respect of the XXXXXXXXXX Benefit allocated to XXXXXXXXXX accounts on or before XXXXXXXXXX in respect of one or more taxation years during the period of service to which the benefit relates for XXXXXXXXXX who were resident in Canada and/or employed in Canada or more than occasionally employed in Canada throughout such taxation years will be transferred to the U.S. XXXXXXXXXX Plan provided the applicable XXXXXXXXXX is not currently resident in Canada and makes a valid election in respect of such transfer as set out above;
g) the portion of the assets and investment earnings thereon currently held under the XXXXXXXXXX Plan in respect of the XXXXXXXXXX Benefit allocated to XXXXXXXXXX accounts during the period XXXXXXXXXX to XXXXXXXXXX in respect of one or more taxation years during the period of service to which the benefit relates for XXXXXXXXXX who were not resident in Canada and not employed in Canada or only occasionally employed in Canada throughout the corresponding one or more taxation years will be transferred to the U.S. XXXXXXXXXX Plan provided the applicable XXXXXXXXXX is not currently resident in Canada and makes a valid election in respect of such transfer as set out above; and
h) the portion of the assets and investment earnings thereon currently held under the XXXXXXXXXX Plan in respect of the XXXXXXXXXX Benefit allocated to XXXXXXXXXX accounts during the period XXXXXXXXXX to XXXXXXXXXX in respect of one or more taxation years during the period of service to which the benefit relates for XXXXXXXXXX who were resident in Canada and/or employed in Canada or more than occasionally employed in Canada throughout such taxation years will be transferred to the U.S. XXXXXXXXXX Plan provided the applicable XXXXXXXXXX is not currently resident in Canada and makes a valid election in respect of such transfer as set out above.
28. The proposed transfers described in (b), (d), (f) and (h) of 27 above would be made only in accordance with a XXXXXXXXXX election and applicable pension standards legislation and subject to withholding tax under section 212 of the Act (as reduced by the Canada/U.S. Tax Treaty or such other treaty as may be applicable).
29. The determination of whether a XXXXXXXXXX was "occasionally employed" in Canada will be made in accordance with Nanne.
Purpose of the Proposed Transactions
30. XXXXXXXXXX.
31. XXXXXXXXXX.
Ruling
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions and provided the proposed transactions are completed as described above, we rule as follows:
A. XXXXXXXXXX as described in 21 above, who were employed by a U.S. XXXXXXXXXX and who were not resident in Canada during: the period XXXXXXXXXX to XXXXXXXXXX to which the Basic and XXXXXXXXXX Benefits relate, the period prior to XXXXXXXXXX to which the XXXXXXXXXX Benefit may relate or the period prior to XXXXXXXXXX, or a portion thereof, were "only occasionally employed in Canada" within the meaning of subparagraph 212(1)(h)(vi) of the Act during such period(s), or such portion thereof.
The above ruling, which is based on the Act in its present form and does not take into account any proposed amendments thereto, is given subject to the general limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002, and is binding on the Canada Customs and Revenue Agency provided that the proposed transactions described in (a), (c), (e) and (g) of 27 above are completed by XXXXXXXXXX.
For greater certainty, the transfer of assets from the XXXXXXXXXX Plan to the U.S. XXXXXXXXXX Plan will be made in accordance with the requirements under the Act respecting transfers from a registered pension plan. The transfer of assets from the XXXXXXXXXX Plan to the U.S. XXXXXXXXXX Plan in respect of participants who were resident in Canada and/or employed in Canada or more than occasionally employed in Canada during the taxation years to which the assets relate, will be made in accordance with applicable pensions standards legislation and will be subject to withholding tax under section 212 of the Act (as reduced by the Canada/U.S. Tax Treaty or such other treaty as may be applicable).
Yours truly,
XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
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