Principal Issues: [TaxInterpretations translation] Do the rules in paragraphs 107.1(b) and (c) apply to a fiduciary agreement covered by section 7?
Position: No.
Reasons: Where a fiduciary agreement is covered by section 7, none of the provisions relating to employee benefit plans, including those of section 107.1, shall apply.
FEDERAL TAX ROUNDTABLE
APFF CONFERENCE 2010
Question 36
Employee benefit plan
Paragraph 107.1(b) provides that where an employee benefit plan trust (the "Trust") distributes shares held by the Trust to an employee beneficiary, the Trust is deemed to have disposed of the shares for proceeds equal to their cost amount immediately before that time and the employee is deemed to have acquired the shares at a cost equal to the greater of the fair market value ("FMV") of the shares at that time and the adjusted cost base ("ACB") of the employee's interest in the Trust. The Employee is generally deemed to have acquired the shares at their FMV since the ACB of the Employee's interest in the Trust is generally nil. Paragraph 107.1(c) deems the employee to have disposed of the employee's interest in the Trust for proceeds equal to the employee's ACB.
The jurisprudence (footnote 1) has made it clear that the rules of section 7 take precedence over those of paragraph 6(1)(g) where a plan is an agreement whereby an employer has agreed to issue or sell shares to its employees under section 7.
In addition, no amount must be included in the employee's income at the time the shares are transferred by the Trust (subsection 7(2)) since the provisions of section 7 apply in priority to those of paragraph 6(1)(g) as stated above.
Consequently, any appreciation in the value of the shares accumulated during the period the shares are held by the Trust is tax-free since the employee is deemed to acquire them at their FMV.
Questions to the CRA
Does the CRA agree with this position?
CRA Response
Generally, it is the CRA's position that where the provisions of section 7 apply to a particular fiduciary plan, then none of the provisions relating to employee benefit plans, including those of section 107.1, apply. The question of whether a particular fiduciary plan falls within the provisions of section 7 is one of fact and law that can only be resolved by an examination of the plan and all relevant facts.
Mélanie Beaulieu
(613) 957-9226
October 8, 2010
2010-037356.
FOOTNOTES
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 MNR v. Chrysler Canada Ltd. , 92 D.T.C. 6346 (F.C.T.D.) (" Chrysler Canada Ltd.").