| 922695 | |
| 24(1) | A. Payette |
| (613) 957-8953 |
Attention: 19(1)
November 13, 1992
Re: Amounts Paid from an Employee Profit Sharing Plan ("EPSP") to an Employee
This is in reply to your letter of September 4, 1992, wherein you enquired whether there was any legislative authority to exclude from withholding requirements any payments made to an employee under an EPSP.
Our opinion
Subsection 144(3) of the Income Tax Act (the "Act") states:
"There shall be included in computing the income for a taxation year of an employee who is a beneficiary under an employees profit sharing plan each amount that is allocated to him contingently or absolutely by the trustee under the plan at any time in the year otherwise than in respect of
(...)" (our emphasis)
As mentioned in paragraph 10 of Interpretation Bulletin IT-379 (copy of which is enclosed), the effect of subsections 144(3), (4), (8) and paragraphs 148(1)(a) and 148(9)(c) of the Act is that the beneficiary of an employees profit sharing plan must include in his income for a year any amount that is allocated to him, either contingently or absolutely, by the trustee during the year. Paragraph 11 of IT-379 also states that, since the beneficiary is taxed on the basis of allocations made by the trustee to him, he is not subject to tax on payments he actually received providing they represent:
(a) payments made by him to the trustee,
(b) net amounts that were previously allocated to him including losses other than capital losses,
(c) capital gains made by the trust for taxation years after 1971 to the extent they have been allocated by the trust to the beneficiary, or
(d) capital gains either realized by the trust prior to 1972 or that represent appreciation in value of trust properties that occurred prior to 1972,
(e) unrealized capital gains, as of December 31, 1971, inherent in the value of property received by him from the trustee,
(f) a dividend received by the trust from taxable a Canadian corporation, to the extent allocated to the beneficiary but a dividend under subsection 83(1) received after May 25, 1976 is excluded from this category and as a result amounts which a trustee allocates as subsection 83(1) dividends will not be included in the sources available for tax-free distribution, or
(g) life insurance proceeds received by the trust upon the death of the life insured, to the extent allocated to the beneficiary.
Amounts attributable to the above sources will have borne tax at an earlier time or will be of such a nature that no tax is payable at any time.
Accordingly, assuming a payment made under subsection 144(6) of the Act is not otherwise included in the income of a beneficiary, subsection 153(1) of the Act should not apply to withhold tax on such amount.
We trust the foregoing is of assistance.
Yours truly,
P.D. Fuocofor DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch