M. Vallée (613) 957-8982
March 24, 1988
Madam:
Re: Employee Savings Plan
This is in reply to your letter dated February 29, 1988 whereby you request our opinion concerning the timing of the taxation, in the hands of the beneficiaries, of benefits withdrawn or not from the XXXX (the "Plan").
XXXX
You request our opinion as to the amount that an employee must include in the computation of his income if he (1) withdraws his entitlement in 1987 or (2) leaves his entitlement in the Plan.
As stated in our supplemental ruling dated July 16, 1987, the amounts in the Plan relating to the post June 1986 services are taxable in the hands of the employees under the salary deferral arrangement rules.
Consequently, by virtue of subsection 6(11) of the Act, an employee who does not withdraw his entitlement from the Plan is deemed to have received in the year a benefit under paragraph 6(1)(a) of the Act, equal to the deferred amount, to the extent that this amount was not otherwise included in computing his income for the year or any preceding taxation year.
Furthermore, for the purposes of subsection 6(11) of the Act, any additional amount that accrues on the entitlement is deemed by virtue of subsection 6(12) of the Act to be a deferred amount that the employee has a right to receive under the arrangement and is thus taxable under subsection 6(1)(a) of the Act.
Finally, when an employee withdraws an amount from the Plan, he must include the amount he receives in the computation of his income, in excess of amounts included in the computation for preceding taxation years (paragraph 6(1)(i) of the Act).
In summary, a beneficiary of the Plan which is subject to the salary deferral arrangement rules, must include in the computation of his income the value of the shares at the time in the year he is deemed to receive them. Subsequently, he must include in the computation of his income the accrued value of the shares at the time he withdraws them from the Plan (subsection 6(1)(i) of the Act), or at the time he has a right to receive them (paragraph 6(12) of the Act).
Yours truly,
Original signe par A. THILBAULT
for the Director Bilingual Services ant Resource Industries Division Rulings Directorate