| December 29, 1990 | |
| Appeals and Referrals Division | Financial Industries |
| Appeals Branch | Division |
| F. Francis | |
| Attention: D. Evanson | 957-3496 |
SUBJECT: 24(1) Employee Share Ownership Plan (the "Plan")
This is in reply to your memorandum of November 14, 1990 wherein you requested our comments in respect of the applicability of paragraph 7(3)(b) of the Income Tax Act (the "Act") in the following situation:
24(1)
24(1) It should be noted that paragraph 5 of Interpretation Bulletin 502 states that the reference to "another person" in the definition of EBP is considered as a reference to an entity other than the employer but would include a trust for which the employer is trustee. We direct your attention to the Department's published Income Tax Ruling ATR 17. In that ruling we stated that the subject trust would constitute an EBP where the shares were acquired on the open market for eventual distribution to employees.
Consequently, by virtue of paragraph 6(1)(g) of the Act, the employee would include in income the excess of the fair market value of the shares over an amount which represents a return of the employees contribution. The employer would be entitled to a deduction under subsection 32.1(1) of the Act. Finally we note that the distribution of shares to the employees would be subject to the rules under section 107.1 of the Act.
We trust the above comments will be of assistance to you.
for DirectorFinancial Industries DivisionRulings Directorate