4 April 1990 Income Tax Severed Letter AC74810 - Employee Savings Plan

April 4, 1990

FROM - Financial Industries Division A.B. Adler (613) 957-8962

TO - Assessing and Enquiries Directorate Returns Processing Division

     Attention: D.I. Wyse, Chief
                Trust and S.E.R.
                Assessing Section

SUBJECT: Employee Savings Plans
                24(1)
         Your File: HAV 9586-1

This is in reply to your memorandum dated March 14, 1990 in which
you requested our views concerning a proposed non-registered
portfolio of funds to be established by     24(1)     for the
investment of after-tax funds of certain employees.

     19(1)     indicated that in theory the fund operates in a
manner similar to that of a mutual fund.  For example, each
employee's contribution would acquire one or more units in the fund
at the unit value at that time, and a unitholder may cash out of
the fund at any time and realize an amount equal to the number of
units surrendered times the unit value at the relevant time. 

Further, the fund's units would increase in value through income earned by its investments or capital gains realized thereon, and would drop in value due to management fees, other administrative expenses and capital losses incurred on the disposition of its investments.

Generally, such a fund would be administered by an inter vivos trust as defined in paragraph 108(1)(f) of the Income Tax Act ("Act"). In the absence of relevant documentation, for example the proposed trust deed, we are not in a position to advise you whether any trust would qualify as a unit trust under the detailed rules in paragraphs 108(2)(a) or (b) of the Act. However, it is always a question of fact whether a trust exists for the purposes of subdivision k of Division B of Part I of the Act since the Act contains no definition of trust that may be used for purposes of establishing whether or not a trust exists.

We suggest that you contact     19(1)     with the view to
establishing whether or not a trust arrangement would be
established under the proposed fund.  Presumably,     19(1)    
could discuss this issue with legal counsel for     24(1)     and
provide you with their views.

Should the proposed fund involve an inter vivos trust or a unit trust we agree that it would be required to file a T3 return and issue T3 supplementaries annually to its unitholders. Further, the trust deed of such a trust generally would, as you have indicated, provide for amounts of income to become payable to and be allocated to its beneficiaries.

Let us know if we can be of further assistance to you.

W. Douglas for Director Financial Industries Division Rulings Directorate