Principal Issues: Is there a disposition where all the property in respect of an employee is transferred from one employer's EPSP to another employer's EPSP?
Position: No, as long as all the conditions in paragraph (f) of the definition of disposition under s.248(1) are met.
Reasons: Wording of the Act.
XXXXXXXXXX 2010-038547 P. Tsang
January 21, 2011
Dear XXXXXXXXXX ,
Re: Employee Profit Sharing Plan ("EPSP") Transfers
This is in response to your correspondence of October 29, 2010, wherein you requested our comments on the direct transfer of all the property held in respect of an employee in one employer's EPSP trust to another employer's EPSP trust. In particular, you wish to know whether a disposition would occur for these direct transfers and whether a different conclusion would result if the employers are in a non-arm's length relationship.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. We are, however, prepared to offer the following general comments which may be of assistance.
The term "disposition" is defined in subsection 248(1) of the Income Tax Act ("Act") and includes, inter alia, any transfer of property to a trust. Paragraph (f) of the definition excludes certain transfers of property from one trust to another trust. In particular, there is no disposition in transfers where there is no change in the beneficial ownership of the transferred property and all the other conditions under paragraph (f) of the definition are satisfied. Whether there is a change in the beneficial ownership of the property is a question of fact that can only be made after all the facts and circumstances of a particular case have been considered.
In your situation, there is a transfer of property between one employer's EPSP trust to another employer's EPSP trust. It is our view that paragraph (f) of the definition of disposition may apply regardless of the relationship between the employers, be it arm's length or non-arm's length. Consequently, to determine whether a disposition occurred in such transfers, it is necessary to determine whether all the conditions in paragraph (f) are satisfied.
We trust the above comments will be of assistance.
Yours truly,
Mary Pat Baldwin, CA
for Director
Deferred Compensation Arrangements and Retirement Plans Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch