| 24(1) | File No. 900350 |
| W.C. Harding | |
| (613) 957-8953 |
19(1)
May 15, 1990
Dear Sirs:
24(1)
This is in reply to your letter of April 5, 1990 in respect of a proposal to transfer property held in a United States deferred profit sharing plan to a Canadian Registered Deferred Profit Sharing Plan (a "DPSP").
Since the subject matter of your request relates to a proposed transaction, we cannot provide any specific opinions in respect to it except in response to a request for an advance income tax ruling. Such a request entails the provision of all related documents for our review as well as an identification of all of the specific provisions of the Income Tax Act (the "Act") in respect of which the request is to be considered. A ruling request must also contain a statement as to whether any of the issues involved are to the best of a taxpayer's knowledge being considered by a District Office and/or Taxation Centre in connection with a tax return already filed, or if any of the issues are under objection.
The procedures are discussed in our Information Circular IC-70-6R, a copy of which is attached for your reference. Please note that the hourly rate for rulings is now $65, the required deposit is $325, and there is no longer a minium charge.
While we cannot, at this time, provide a ruling, we can offer the following comments.
The nature of a payment received out of U.S. DPSP cannot be determined without reviewing the terms of the particular plan. If the plan is directed primarily to providing pension benefits, it would probably represent a foreign pension plan and it could be either an EBP or an RCA for Canadian tax purposes.
If a U.S. DPSP is determined to be a "profit sharing plan" as defined in paragraph 147(1)(b) of the Act it may or may not also qualify as an "Employees Profit Sharing Plan" (an "EPSP") as defined by subsection 144(1) of the Act. This will occur only if the plan meets the provisions described in that section and the administrative provisions as detailed in information circular 77-1R3. Generally we have found that U.S.-DPSPs will not qualify as EPSPs unless an election under subsection 144(10) of the Act is made. This is because, in general, these plans have employee contributions made "out of profits" instead of in "reference to profits".
When a U.S.-DPSP is not an "EPSP" it will be an EBP for Canadian Taxation purposes and its property cannot be transferred without tax consequences to a DPSP. If, however, the plan does qualify as an EPSP or it can be caused to qualify through modification of its terms, or a subsection 144(10) election, its property can, through a series of steps be transferred to a DPSP without immediate Canadian taxation of any amounts.
In general terms the procedures required would be:
1. A separation of the property of the U.S.-DPSP which pertains to the Canadian employees in a trust with identical terms, as those of the U.S.-DPSP.
2. A change of trustees to qualifying Canadian trustees.
3. Application for registration of the plan as a DPSP in accordance with the instructions in Information Circular 77-1R3.
It should be noted that all amounts received by an employee or former employee out of the plan in excess of his personal contributions are taxable in Canada, whether or not his Canadian Employer has claimed a deduction for Canadian tax purposes. It must also be noted that any questions concerning U.S. tax treatment of the transaction must be addressed to the United States authorities.
Employer contributions made to a registered DPSP in 1990 which are in respect of 1989 do not affect an employees RRSP contribution limits for 1989.
The above comments reflect our interpretation of the law as it applies generally but may not always be appropriate in the circumstances of a particular case. As discussed above these comments do not form an advance income tax ruling and, as stated in paragraph 24 of Information Circular 70-6R, are not binding on the Department.
Yours truly,
Wayne Douglasfor DirectorFinancial Industries DivisionRulings Directorate