March 5, 1991
Dear Sirs:
Re: Employees Profit Sharing Plan ("EPSP") Section 144 of the Income Tax Act (the "Act")
This is in reply to your letter of August 30, 1990 concerning an EPSP under which the trustee would invest in guaranteed accounts that pay fixed rates of interest for fixed terms (daily interest and one to five years terms).
If a member of the EPSP elects to withdraw from the plan prematurely, an amount less or more than the principal plus accrued interest would generally become payable. This is due to the fact that there is a termination charge and a "market value adjustment".
Comments
As noted in Information Circular 70-6R2 dated September 28, 1990, we do not give opinions in respect of specific proposed transactions other than as a reply to an advance income tax ruling request. We are, however, prepared to offer the following general comments.
As indicated in the definition of trust at subparagraph 108(1)(j)(ii) of the Income Tax Act (the "Act"), sections 105 to 107 do not apply to a trust governed by an EPSP. It is our view that a beneficiary of an EPSP in the situation described by you would not be considered to have an interest in the underlying insurance policy. Accordingly, neither of subsections 12.2(1) and 20(20) of the Act would be applicable.
It is to be noted that paragraph 144(9) of the Act provides a relief where an employee ceases to be a beneficiary under an EPSP at a time when he has not received an amount previously included in his income and is not entitled to receive it.
As previously indicated, this letter is not an advance income tax ruling. Rather, it reflects expressions of opinion only which, as stated in paragraph 24 of Information Circular 70-6R2, are not binding on the Department. We trust, however, that our comments will be of assistance.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate