| 19(1) | File No. 5-9539 |
| W.C. Harding | |
| (613) 957-8953 |
February 22, 1990
Dear Sirs:
Re: 24(1) Employee Stock Purchase Plan (the Plan)
This is in reply to your letter of January 31, 1990 wherein you requested clarification of the application of Section 107.1 of the Income Tax Act (the "Act") as it applies to the above noted Plan.
As you are aware, it is our position 24(1)
As you noted, paragraph 107.1(7) of the Act deems an employee to have disposed of his interest (or part thereof) in the EBP at its adjusted cost base (ACB) and paragraph 107.1(b) of the Act deems the employee to have acquired the particular shares in question at a cost equal to the greater of their fair market value at that time and the ACB of the interest (of part thereof) in the trust. In our opinion the employee's contributions will be included in the ACB of his interest in the EBP to the extent that it is reasonable to consider that they were used to acquire that interest. The employers contributions to the extent that they were included in the employee's income will also be added to the ACB of the employee's interest in the EBP as provided by section 52 of the Act.
When shares held in an EBP are considered to be distributed to a beneficiary and those shares continue to be held by the trustee of the EBP, it will be a question of fact whether or not they are being held by the trustee as an agent for the employee or in trust for the employee who is both settlor and beneficiary of the trust. Where the latter is the case, the provisions of the Act governing trusts will have application.
We hope these comments clarify our position on this matter.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate