21 July 1989 Income Tax Severed Letter AC74121 - Employee Pension Plan

July 21, 1989

Registered Pension Plan                 Rulings Directorate
Deferred Income Plans Division          Financial Industries
                                          Division
                                        F. Francis
Attention:  F.  Brock                   957-3496

Subject:      24(1)
          Employee Pension Plan         File  7-4121

This is in reply to your memorandum of July 10, 1989, wherein you requested our opinion in respect of the following situations:

                            24(1)
You have requested our views in respect of three specific issues:

1.        The implications of including the proposed amendments
          in the RPP.

2.        The income tax consequence to the employer of the funds
          going directly to the Trust Fund.

3.        Whether the Trust Fund would be considered as an
          employee benefit plan ("EBP") or retirement
          compensation arrangement ("RCA") as these terms are
          defined under subsection 248(1) of the Act.

We have not received a copy of the proposed Trust Fund Agreement and are therefore unable to provide any conclusive comments on the tax consequence thereof.

It is our position that paragraph 254(b) of the Act may be applicable since the employees' rights to surplus under the proposed amendment are not rights provided under the RPP. Under paragraph 254(b) of the Act, an amount equal to the value of rights created by the proposed amendment shall be deemed to have been received by 24(1) the Participants and the employees under the RPP at the time the amendment is implemented. However, in view of the fact that the allocation of surplus will only be determined by the trustees of the Trust Fund upon termination of the RPP, the value of the rights may not be determinable at this time. Consequently, it may be preferable to apply paragraph 254(b) of the Act at the time the Trust Fund is established.

Alternatively, it is arguable that the surplus received by the
Trust Fund from the RPP may be considered as a superannuation or
pension benefit and would be included in the income of the Trust
Fund under paragraph 56(1)(a) of the Act.
                          S23

to the definitions of EBP and RCAs are plans or arrangements under which contributions are made by an employer or a person with whom the employer does not deal at arm's length. Consequently, provided that the employer and the RPP deal at arm's length, and provided that the payment by the RPP cannot reasonably be considered to be made on behalf of the employer it is our view that the Trust Fund would not be an EBP or an RCA but would be a trust which is taxable under Part I of the Act.

We trust the above comments will be of assistance to you.

Yours truly,

for Director Financial Industries Division Rulings Directorate