Regulation 4800.1

Table of Contents

Cases

McNeeley v. Canada, 2021 FCA 218

prescribed trust was to be treated as an EBP and thus excluded from s. 107 rules

A distribution to an employee under an employee benefit trust (EBP) is taxable under s. 6(1)(g) rather than being subject to the usual trust distribution rules in s. 107. On the other hand, various s. 107 rules are stated to apply to a prescribed trust described in Reg. 4800.1. A trust for employees, which held shares in a family-controlled company, made distributions to employees including family members. Their tax reporting relied on the trust being a prescribed trust, so that a capital gain was treated as being realized on the distribution pursuant to s. 107(2.1) (as a result of an s. 107(2.001) election), with that capital gain being allocated to the beneficiaries.

Webb JA and the Tax Court below treated that distribution as instead having been made by an EBP, so that the full value of the distribution was includible in the beneficiaries’ income under s. 6(1)(g). Webb JA noted that the trust satisfied the terms both of the EBP definition and the description of a prescribed trust. In finding that it was an EBP, he cited (at para. 29) Oldman for the proposition that “[o]rdinarily … an Act of Parliament must prevail over inconsistent or conflicting subordinate legislation,” and then stated (at para. 30):

[S]ince the definition of a prescribed trust is set out in the Regulations, the paramountcy of the definition of an employee benefit plan in the Act must govern. Otherwise, the Act would be amended by the Regulations if an arrangement, such as the one in this appeal, is not an employee benefit plan as defined in the Act because it is also a prescribed trust as defined in the Regulations.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Employee Benefit Plan plan that came within EBP and Reg. 4800.1 descriptions was to be treated as an EBP 631
Tax Topics - Statutory Interpretation - Regulations/Statutory Delegation principle that the Act must prevail over an overlapping Regulation 243

See Also

McNeeley v. The Queen, 2020 TCC 90, aff'd 2021 FCA 218

prescribed trust and EBP are mutually exclusive

The founding shareholder of a software company received the lion’s share of a distribution of the company shares held by an EBP. Before rejecting the individual’s argument that he was not taxable on the distribution because it was received by him qua founding shareholder rather than qua CEO (he received about 70% of the distribution so that there was no unacceptable dilution), Russell J found that the Trust was not a prescribed trust (referenced, for example, in s. 107(2)), stating (at para. 31):

As paragraph (a) of the subsection 108(1) “trust” definition excludes EBP trusts from any and all references to “trust” in section 107, while at the same time certain provisions of section 107 constitute the statutory basis for prescribed trusts, it would seem no EBP could concurrently be a prescribed trust. In particular, the Trust, being an EBP, cannot as well be a prescribed trust.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Employee Benefit Plan a substantial distribution from an EBP to the founding shareholder was made to him qua employee, and was taxable 515

Navigation