February 11, 1988
F. Francis (613)957-3498
Dear Sirs,
This is in reply to your letter of November 2, 1987, wherein you requested our opinion with respect to an employee stock purchase plan (the "Plan").
You have requested us to confirm that the Plan would be taxed as an "employee savings or thrift plan" and not as an "employee benefit plan" as that term is defined in subsection 248(1) of the Income Tax Act (the "Act").
It would appear that the Plan represents a completed transaction. In order to determine the income tax implications of the Plan, we suggest that you consult with the local district taxation office. We do, however, offer the following comments.
Generally, share purchase arrangements for employees are subject to the provisions of section 7 of the Act which contemplates situations involving shares held or acquired by an intermediary trustee. Where section 7 of the Act applies, subsection 7(3) thereof would effectively preclude the application of the employee benefit plan provisions. Based on the information provided, it would appear that the Plan would be governed by the provisions of section 7 of the Act. Furthermore, it is our view that, if section 7 applies, the benefit conferred upon the employees by virtue of the employer's contributions would be included in their income under paragraph 7(l)(a) of the Act. As a consequence thereof, the employer's costs would not be deductible pursuant to subsection 7(3) of the Act.
The above comments are an expression of opinion only and are not binding on the Department. They are, however, our best interpretation of the relevant legislation as it applies generally and we trust that they are of assistance to you.
Yours truly, XXXX for Director Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch