17 October 2000 External T.I. 2000-0023785 - GROUP SAVINGS PLAN

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 the exchange of units in a group savings plan for a direct interest in the property held in the plan is a disposition for tax purposes.

Position: Yes.

Reasons: The definition of "disposition" in section 54 of the Act and the proposed definition of "disposition" in section 248(1) of the Act.

XXXXXXXXXX 2000-002378
A. Seidel
October 17, 2000

Dear Madam:

Re: Group Savings Plan

This is in reply to your letter dated April 24, 2000 in which you requested our views as to whether the exchange of units in a group savings plan for a direct ownership interest in the shares previously held in the plan is a disposition for tax purposes.

The particular circumstances in your letter on which you have asked for our views appears to be a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R3, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate district tax services office for their views. However, we are prepared to offer the following general comments which may be of assistance.

Section 54 of the Income Tax Act (the "Act") defines "disposition" for the purposes of Subdivision c of Division B of Part I of the Act. The June 5, 2000 Notice of Ways and Means Motion proposes to add the definition of "disposition" to subsection 248(1) of the Act applicable, subject to certain exceptions, to transactions and events that occur after December 23, 1998. This definition will replace the definition in section 54 of the Act and will apply for all purposes of the Act.

Pursuant to paragraph (a) of the definition of "disposition" in section 54 of the Act and the proposed definition thereof in subsection 248(1) of the Act, any transaction or event entitling a taxpayer to proceeds of disposition of a property is a disposition for tax purposes unless it falls within one of the exceptions described therein. As discussed in paragraph 2 of Interpretation Bulletin IT-170R, the date of disposition of capital property occurs at the time that the vendor is entitled to the sale price of the property.

In the situation where an individual is the holder of "units" of a group savings plan, these "units" would generally be capital property to the holder thereof. Where the individual converts such "units" and receives in exchange the investments previously held by the plan, it is our view that the individual has a disposition of the "units" within the meaning thereof in the Act. The proceeds of disposition would be a payment in kind, being the investments received by the individual from the plan. This type of transaction is not excluded under any of the exceptions in the definition of "disposition" in section 54 of the Act or under any of the exceptions in the proposed definition thereof in subsection 248(1) of the Act. Finally, there is no other provision, such as the proposed amendment in respect of stock options, which would permit the taxpayer to defer the reporting of the "disposition" for tax purposes.

The publications referred to in this letter may be obtained from your local tax services office or from our Internet web site (www.ccra-adrc.gc.ca).

Yours truly,

John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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