23 January 1990 Ministerial Letter 59098 F - Employee Share Purchase 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.

January 23, 1990

Dear Sirs:

Re:  Employee Share Purchase Plans

This is in reply to your letter of November 15, 1989 wherein you requested our consideration of a proposed model share purchase plan.

We do not give opinions in respect of actual proposed transactions other than as a reply to an advance income tax ruling request.  However, we may offer the following general comments.

To the extent that a Company's payments under a plan can reasonably be considered to have been used to purchase shares from treasury, it is the Department's position that the provisions of section 7 of the Income Tax Act (the Act) will be applicable to the plan.  As a consequence thereof, the benefit conferred on the employees by virtue of the Company's contributions will be included in their incomes under paragraph 7(1)(a) of the Act at the time the shares are acquired by the trust, and the Company's contribution will not be deductible pursuant to subsection 7(3) of the Act.

Subject to our comments below, based on the apparent purpose of share purchase plans in general, where a Company's contributions are used to purchase shares from the market, it is our view that a plan would not be a salary deferral arrangement since the deferral of taxes would not be one of the main purposes of the plan.  In this situation, the plan would be treated as an employee benefit plan and an employee would report the benefit at the earliest of the date the shares were given to the employee. The provisions of section 32.1 of the Act would be applicable in determining the Company's deduction with respect to the contributions.

In general, we would not expect share purchase plans to be Retirement Compensation Arrangements.  However, this may only be determined on a case by case basis and only after a complete evaluation is made of the intent and specific provisions of each plan.

We trust these comments are satisfactory to your needs.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate