20 August 2001 Internal T.I. 2001-0092797 - MULTI-EMPLOYER PENSION RELATED GROUP

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: We were requested to provide a definition of the terms "related group" and "control" as used in relation to "multi-employer pension plans"

Position: provided basic definitions

Reasons: The terms are defined for purposes of the Act. The Definitions provided are based on those provided in various publications.

August 20, 2001

	HEADQUARTERS	HEADQUARTERS
	Registered Plans Directorate	Income Tax Rulings
	Patricia Spice	     Directorate
	Acting Director	W.C. Harding
	Policy and Communication Division	957-8953

	Attn:  Michel J. Cronier	2001-009279
	          Senior Policy and Communications Officer

Multi-Employer Plans, Related Groups and Control

This is in reply to your e-mail of June 27, 2001, in which you asked us to provide our comments on the meaning of the terms "related group" and "control" in relation to a multi-employer plan.

"Related Group"

In basic terms, a multi-employer pension plan is one where no more than 95% of the participants are employed by a single participating employer or by a "related group of participating employers". As defined in subsection 251(4) of the Act (the "Act"), a related group means a group of persons each member of which is related to every other member of the group. The definition in subsection 251(4) applies for all purposes of the Act, and is applicable to multi-employer and specified multi-employer plans.

For the purposes of the Act, subsection 251(2) provides that, persons related to each other are:

• individuals connected by blood relationship, adoption, marriage or common-law partnership;
• a corporation and
  • a person that controls the corporation
  • a person who is a member of a related group that controls the corporation, or
  • any person related to a person described in either of the above two situations; and
• * any two corporations
  • if they are controlled by the same person or group of persons,
  • if each of the corporations is controlled by one person and the person who controls one of the corporations is related to the person who controls the other corporation,
  • if one of the corporations is controlled by one person and that person is related to any member of a related group that controls the other corporation,
  • if one of the corporations is controlled by one person and that person is related to each member of an unrelated group that controls the other corporation,
  • (v) if any member of a related group that controls one of the corporations is related to each member of an unrelated group that controls the other corporation, or
  • (vi) if each member of an unrelated group that controls one of the corporations is related to at least one member of an unrelated group that controls the other corporation.

Generally, corporations that are both related to a third corporation are also deemed to be related to each other.

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"Control"

The term "control" is not defined in the Act but the concept of control is considered in detail in paragraphs 13 through 19 of Interpretation Bulletin IT-64R3 Corporations: Association and Control - After 1988. This commentary refers to two forms of control known as "de jure control" and "de facto control".

The concept of "de jure control" as adopted by the Agency, has been developed by the courts and in general terms means the right that rests in ownership of the number of shares necessary to provide a majority of the votes in the election of the Board of Directors or to authorize the wind-up of the corporation. De jure control is relevant in determining if persons are related and hence whether or not there is a related group in any particular situation.

"De facto control" can exist where a person or group of persons has any direct or indirect influence that, if exercised, would result in control, in fact, of a corporation. However, for the purposes of the Act, de facto control is only applicable to provisions of the Act, which specifically refer to "control, directly or indirectly in any manner whatever". Because the provisions concerning related persons do not use this term, de facto control is not relevant.

In situations where a corporation is incorporated without share capital, we are of the view that a person who has the ability to appoint the Board of Directors of the corporation will be considered to control the corporation.

In your request, you asked how a trust might be controlled. We would think that inclusion of comments on the control of a trust would have limited application with respect to a discussion of a related group. Nevertheless, control of a trust is discussed at length in Interpretation Bulletin IT-447 Residence of a Trust or Estate. Briefly, a person controls a trust when the person has control of the property and activities of the trust.

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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