20 October 2004 External T.I. 2004-0093911E5 - Definition of Multi-Employer Plan - 8500(1)

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 pension plan where XXXXXXXXXX % of the active members are employed by a province and XXXXXXXXXX % are employed by a crown corporation controlled by the province, be considered a multi-employer pension plan as defined in subsection 8500(1) of the Income Tax Regulations?

Position: Question of fact. Based on the facts provided in this particular situation, no.

Reasons: A province is considered to be a person for purposes of the Act (149(1.2)(b)) and the province is the only person controlling the crown corporation in this particular situation. Therefore, the province and the crown corporation will be defined to be related persons and a related group in accordance with subsections 251(2) and 251(4) of the Act. As 100% of the active members of the pension plan are employed by a related group of participating employers, the definition of MEP in subsection 8500(1) of the Regulations would not be satisfied.

XXXXXXXXXX 							2004-009391
G. Allen
October 20, 2004

Dear XXXXXXXXXX:

Re: Definition of Multi-Employer Plan

This letter is a reply to your letter dated June 28, 2004 to the Registered Plans Directorate wherein you request clarification of the definition of multi-employer plan (MEP) as defined in subsection 8500(1) of the Income Tax Regulations (the "Regulations"). The Registered Plans Directorate forwarded a copy of your letter to our Directorate for our consideration and reply. In your letter, you specifically request clarification concerning whether XXXXXXXXXX (the "Province") is related to a crown corporation of the Province (the "Crown Corporation") for purposes of the definition of MEP in subsection 8500(1) of the Regulations.

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. For more information concerning advance tax rulings, please refer to Information Circular 70-6R5 dated May 17, 2002. Copies of information circulars are available at your local Tax Services Office or on the Internet at http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. 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 general comments, which may be of assistance.

Subsection 8500(1) of the Regulations defines MEP, in a calendar year, to mean

(a) a pension plan in respect of which it is reasonable to expect, at the beginning of the year (or at the time in the year when the plan is established, if later), that at no time in the year will more than 95 per cent of the active members of the plan be employed by a single participating employer or by a related group of participating employers, other than a plan where it is reasonable to consider that one of the main reasons there is more than one employer participating in the plan is to obtain the benefit of any of the provisions of the Act or these Regulations that are applicable only with respect to multi-employer plans, or

(b) a pension plan that is, in the year, a specified multi-employer plan,

and, for the purposes of this definition, two corporations that are related to each other solely by reason that they are both controlled by Her Majesty in right of Canada or a province shall be deemed not to be related persons.

The first issue to consider in the context of your enquiry as it relates to the definition of MEP is whether the employees of the Crown Corporation are in fact employees of the Province or the Crown Corporation. It is a question of fact who is the employer of an employee and this determination can only be made after a review of all of the relevant facts in a particular fact situation. A review of the legislation that established the Crown Corporation may assist in making this determination. We would refer you to comments made in paragraph 2 of IT-106R3, Crown Corporation Employees Abroad, concerning whether an employee of a crown corporation is an "officer or servant of a province". In general, if the legislation establishing the Crown Corporation provides that the Crown Corporation is not an agent of the Province or its employees are designated not to be part of the public service of the Province, then the employees of the Crown Corporation would not be employees of the Province, but rather, employees of the Crown Corporation. Alternatively, the legislation may clearly specify that the employees are employees of the Crown Corporation.

If the factual determination in this particular situation reveals that the Province is the employer of the employees, the plan would not by definition be a MEP. If the determination reveals that the Crown Corporation is the employer of the employees, consideration must be given to the meaning of the words "by a related group of participating employers" and the post-amble of the definition of MEP.

Your understanding is correct, in that it is our view that Her Majesty in right of a province is a person for purposes of the Income Tax Act (the "Act"). In determining whether a group of employers is a "related group", reference must be made to the definition of this expression in subsection 251(4) of the Act. A "related group" is defined to mean a group of persons each member of which is related to every other member of the group. Subsection 251(2) of the Act defines "related persons" to include a corporation and a person who controls the corporation, if the corporation is controlled by one person. Although "related group" is defined in subsection 252(4) of the Act, the post amble of the definition of MEP contains an exclusion which states that two corporations that are otherwise related to each other because they are controlled by the government of Canada or a province are considered not to be related for purposes of the definition of MEP. As the exclusion in the post-amble of the definition of MEP does not apply to the situation involving the Province and the Crown Corporation and the Province is the only person who controls the Crown Corporation, in our opinion, the Province and the Crown Corporation would be related persons and a related group for purposes of the definition of MEP.

As such, and based on the information provided in your letter stating that 100% of the active members of the plan are employed by the Province and the Crown Corporation, in our opinion, the plan would not be a MEP, as it would not be reasonable to expect, at the beginning of the year, that at no time in the year, will more than 95% of the active members of the plan be employed by a related group of employers.

We trust our comments are of assistance.

Yours truly,

Roberta Albert, CA
Manager
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch

c.c. Registered Plans Directorate

Patricia Spice, Director