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: Whether there is a requirement to withhold income taxes on payments from (i) an "employee benefit plan" (EBP), (ii) a "wage loss replacement plan" (WLRP) and
(iii) an "employee profit sharing plan" (EPSP).
Position: (i) EBP: Yes. (ii) WLRP: Yes. (iii) EPSP: Only when payments from an EPSP must be included in income.
Reasons: (i) EBP and (ii) WLRP: Subsection 153(1) of the Act requires withholding on "salary or wages," which, by the definition in subsection 248(1), includes payments that are included in income under paragraphs 6(1)(f) and 6(1)(g) of the Act. Further, subsection 102(1) of the Income Tax Regulations requires withholding on "remuneration," which is defined to include "salary or wages." (The definition of "salary or wages" in subsection 248(1) of the Act includes income of a taxpayer from an office or employment as computed under subdivision a of Division B of Part I, and the definition of remuneration in the Regulations includes "salary or wages." In our view, it is clear that the definition of "salary or wages" in the Act also applies to the Regulations.)
(iii) EPSP: Subsection 153(1) of the Act (and subsection 102(1)) requires withholding on payments of salary or wages, but amounts included under paragraph 6(1)(d) of the Act ordinarily relate to allocations rather than payments.
February 22, 2000
André Potvin HEADQUARTERS
Director J. Gibbons
Trust Accounts Division 957-2135
1999-001520
Withholding Requirements for Employee
Benefit Plans (EBP) and Employee Profit Sharing Plans (EPSP)
We are replying to your memorandum of December 17, 1999, in which you requested clarification of our position concerning the withholding requirements on payments from an "employee benefit plan" (an "EBP") and an "employee profit sharing plan" ( an "EPSP"). We understand that the issue was raised out of the concerns of the International Tax Directorate over disability benefits received by non-resident XXXXXXXXXX that may exceed $XXXXXXXXXX. They have concluded that tax should be withheld on these payments.
In your letter, you seem to equate EBPs with disability and wage loss replacement plans. You should note that a wage loss replacement plan (WLRP) is not considered to be an EBP according to the definition of EBP in subsection 248(1). Rather, a WLRP is considered a plan to which paragraph 6(1)(f) applies. On the other hand, an EBP is taxed under paragraph 6(1)(g). Nonetheless, as will be discussed below, it is our view that the withholding requirements are identical with respect to payments made from either type of plan.
Employee Benefit Plan
Our position with respect to an EBP is correctly stated in paragraph 48 of IT-502. That is, there is a requirement to withhold income taxes on payments out of or under an EBP (that are taxable under paragraph 6(1)(g)) at the earlier of the date payment is made to the recipients or the date on which they acquire an unrestricted right to receive payment. In our view, this position is clear since subsection 153(1) of the Act requires withholding on "salary or wages," which, by the definition in subsection 248(1), includes payments that are included in income under paragraph 6(1)(g) . Further, subsection 102(1) of the Income Tax Regulations requires withholding on "remuneration," which is defined to include "salary or wages." (The definition of "salary or wages" in subsection 248(1) of the Act includes income of a taxpayer from an office or employment as computed under subdivision a of Division B of Part I, and the definition of remuneration in the Regulations includes "salary or wages." In our view, it is clear that the definition of "salary or wages" in the Act also applies to the Regulations.)
Wage Loss Replacement Plan
We have also reviewed our position with respect to the withholding requirements for payments from a wage loss replacement plan that are taxable under paragraph 6(1)(f). As you indicated in your letter, IT-428 states that there is no requirement for withholding on WLRPs, while paragraph IT-85R2 suggests that there is. For the same reasons outlined above for amounts included in income by virtue of paragraph 6(1)(g) of the Act, it is our view that payments included in income under paragraph 6(1)(f) should also be subject to withholding. (The position in paragraph 23 of IT-428 that there is no withholding requirement on payments from a WLRP was likely taken because many of the benefits paid to taxpayers were not included in income at the time this bulletin was published. These benefits were not subject to tax before 1972, and section 19 of the Income Tax Application Rules provides that benefits from a plan that existed on June 18, 1971, in consequence of an event that occurred prior to 1974, are not included in income under paragraph 6(1)(f)). The bulletin will be revised to reflect these comments.
Employee Profit Sharing Plan
Our position with respect to an EPSP has been recently clarified in IT-379R, "Employees Profit Sharing Plans -- Allocations to Beneficiaries," dated September 29, 1999. Paragraph 15 of this bulletin states that withholding under subsection 153(1) is not required when an employer contributes to an EPSP even though the employer's contributions are included in the beneficiary's income as employment income under paragraph 6(1)(d). It further states that no withholding is required when the trustee makes an allocation to the beneficiary, or when the trustee makes a payment to the beneficiary and the payment is not required to be included in the income of the beneficiary.
Should you wish for us to elaborate on any aspect, I suggest that you contact John Oulton at 957-2098, to arrange a meeting.
Bryan Dath
Director
Business and Publications Division
Income Tax Rulings Directorate
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