Principal Issues: [TaxInterpretations translation]
What is the nature of payments received from a specific job security fund?
Position:
In this case, it is an “employee benefit plan” and the amounts are taxable to the workers under paragraph 6(1)(g) of the Act.
Reasons:
The wording of the definition of “employee benefit plan” in subsection 248(1) of the Act is satisfied and paragraph 6(1)(g) applies.
October 25, 2000
CPP/EI Eligibility Divisions Headquarters
Field Services Section Martine Filiatrault, CA
(613) 957-8953
Attention: Mr. Claude Paquette
2000-004454Request for Interpretation
Employment Security Fund
This is in response to your request of August 29, 2000 for our opinion on the above subject.
Facts
In the situation you have presented to us, the XXXXXXXXXX union and the employers set up an Employment Security Fund (the “Fund”) a number of years ago to guarantee a certain number of eligible workers a minimum weekly remuneration for a minimum of XXXXXXXXXX weeks in a calendar year. Eligible workers contributed to the Fund by paying XXXXXXXXXX for each hour worked, while the employer paid XXXXXXXXXX. Eligible workers were guaranteed to receive a weekly amount of $XXXXXXXXXX for any week in which they had worked at least XXXXXXXXXX hours. The amount of $XXXXXXXXXX was reduced by any wages received during the week.
Employers paid the amounts collected to a bank for the benefit of the Fund. A committee of XXXXXXXXXX members (XXXXXXXXXX employers and XXXXXXXXXX union representatives) was responsible for administering the Fund and paying out the benefits to eligible employees.
Questions
You wish to know the nature of the amounts paid to workers from the Fund for income tax purposes in order to determine the appropriate tax treatment.
Your Position
In your view, the amounts paid by the Fund to eligible workers are amounts from an “employee benefit plan”.
Our Opinion
The term “employee benefit plan” (“EBP”) is defined in subsection 248(1) of the Income Tax Act (the “Act”) as follows:
[A]n arrangement under which contributions are made by an employer or by any person with whom the employer does not deal at arm’s length to another person (in this Act referred to as the custodian of an employee benefit plan) and under which one or more payments are to be made to or for the benefit of employees or former employees of the employer or persons who do not deal at arm’s length with any such employee or former employee (other than a payment that, if section 6 were read without reference to subparagraph 6(1)(a)(ii) and paragraph 6(1)(g), would not be required to be included in computing the income of the recipient), but does not include
(a) a fund or plan referred to in subparagraph 6(1)(a)(i) or paragraph 6(1)(d) or 6(1)(f),
(b) a trust described in paragraph 149(1)(y),
(c) an employee trust,
(c.1) a salary deferral arrangement, in respect of a taxpayer, under which deferred amounts are required to be included as benefits under paragraph 6(1)(a) in computing the taxpayer’s income,
(c.2) a retirement compensation arrangement,
(d) an arrangement the sole purpose of which is to provide education or training for employees of the employer to improve their work or work-related skills and abilities, or
(e) a prescribed arrangement;
Based on the information you have provided to us regarding the Fund, we agree that the Fund satisfies all of the conditions set out in the definition of an EBP and that it is not an excluded plan under paragraphs (a) to (e) above.
Under subparagraph 6(1)(a)(ii), no amount is to be included in an employee's income as a benefit received or enjoyed under an EBP. However, under paragraph 6(1)(g), all amounts received by an employee from an EBP constitute income from an office or employment of the employee in the year received, except to the extent that they represent, among other things, a return of amounts contributed to the EBP by the employee pursuant to subparagraph 6(1)(g)(ii).
Conclusion
An eligible employee must therefore include the amounts received from the Fund in employment income, net of the total of the amounts the employee contributed to the Fund, i.e. the $XXXXXXXXXX for each hour worked, pursuant to paragraph 6(1)(g).
For your information, a copy of this memorandum will be severed using the Access to Information Act and will be available in the Legislative Access Database (LAD) located on the mainframe of the Canada Customs and Revenue Agency. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, the Legislative Access Bank version can be provided. Alternatively, the client may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Ms. Jackie Page at (613) 957-0682. A copy that has been severed in accordance with the Privacy Act will be sent to you for delivery to the client.
Best regards,
Ghislain Martineau
Manager
Business and Individuals Section
Business and Publications Division
Income Tax Rulings Directorate
??
- 3 -