A.B. Adler (613) 957-8962
19(1)
January 26, 1990
Dear Sirs:
This is in reply to your letter dated January 12, 1990 in which you requested our views whether subparagraph 18(9)(a) of the Income Tax Act ("Act") would apply to deny a deduction for a taxation year in respect of otherwise deductible contributions made by a corporation within 120 days after the end of the year to a deferred profit sharing plan ("DPSP"), as provided in subsection 147(8) of the Act.
You indicated that 24(1) .
For your information we do not provide written opinions with respect to actual and completed transactions. However, we are prepared to provide you with the following general comments.
As indicated in paragraph 3 of IT-417R it is our position that the Act requires "that all costs that could clearly be related to future periods be expensed in those periods, if they are material and...". To the extent that the employer's contributions are made out of (i) the profits of the current year in question or (ii) the undistributed profits of that year and prior years, it is our view that such contributions will not be subject to the restriction on the deductibility of an outlay or expense provided for under paragraph 18(9)(a) of the Act. Further, such contributions when paid within 120 days after the end of a taxation year would be deductible in that year under subsection 147(8) of the Act provided the requirements of that provision are fully satisfied.
For your information, effective January 1, 1991, proposed paragraph 147(2)(a.1) of the Act requires a DPSP to restrict contributions that may be made thereto to employer contributions made in accordance with the terms of the DPSP. As a consequence of this rule, DPSPs will no longer be able to accept employee contributions (Source page 67 of "Saving for Retirement, A Guide to the Tax Legislation and Regulations issued December 1989).
We trust that our comments will be of assistance to you.
Yours truly,
W. Douglas for Director Financial Industries Division Rulings Directorate