SUBJECT: SPECIAL RELEASE Employee Benefit Plans and Employee Trusts
NO: IT-502 DATE: May 31, 1991
Application
This Special Release updates Interpretation Bulletin IT-502, dated March 28, 1985. The application of the comments in this bulletin has been substantially limited by amendments to the law enacted in 1986 and 1987.
Depending upon their terms and characteristics, certain plans or arrangements that formerly would have been “employee benefit plans,” subject to the treatment outlined in paragraphs 3 to 33 of the bulletin, will not so qualify if they fall within the definition of a “salary deferral arrangement” or a “retirement compensation arrangement,” set out in subsection 248(1). Reference should be made to the Act in determining the tax treatment of contributions to and benefits received out of the latter two arrangements. A plan or arrangement that qualifies as an “employee trust” is expressly excluded from both the salary deferral arrangement and retirement compensation arrangement definitions in subsection 248(1) and, accordingly, can continue to receive the tax treatment outlined in paragraphs 34 to 49 of the bulletin.
Bulletin Revisions
1. Paragraph 4 is amended by removing the word “and” at the end of item 4(k) and adding the following immediately after item 4(l):
“(m) Salary Deferral Arrangements, in respect of a taxpayer, under which Deferred Amounts are required to be included as benefits under paragraph 6(1)(a) in computing the taxpayer’s income (the terms “salary deferral arrangement” and “deferred amount” are defined in subsection 248(1)), and (n) Retirement Compensation Arrangements, as defined in subsection 248(1) (see also the current
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version of the Department’s Retirement Compensation Arrangement Guide).
2. Paragraph 13 of the bulletin is cancelled and replaced by the following:
“13. For 1987 and earlier taxation years, paragraph 110.2(4)(g) denied the pension income deduction for employee benefit plan payments whether reported under paragraphs 6(1)(g) or 56(1)(a). For 1988 and subsequent taxation years, paragraph 118(8)(e) similarly denies the pension tax credit.”
3. In paragraph 21 of the bulletin, the reference to paragraph 104(13)(a) is replaced by a reference to paragraph 104(13)(b).
4. Paragraph 35 is cancelled and replaced by the following:
“35. A qualifying arrangement that subsequently fails to meet any of the above conditions ceases to be an employee trust. If it does not then meet the definition of either a salary deferral arrangement or a retirement compensation arrangement in subsection 248(1), the arrangement will become an employee benefit plan trust subject to the employee benefit plan provisions. However, as discussed in 15 above, subsection 6(10) provides relief from double taxation in respect of previously taxed allocations.”
5. Paragraph 40 of the bulletin is cancelled and replaced by the following:
“40. The provisions of paragraph 118(8)(e) (denial of the pension tax credit after 1987) and subsection 212(17) (exclusion from Part XIII tax) discussed in 13 and 14 above also apply to payments out of an employee trust. For 1987 and earlier taxation years, paragraph 110.2(4)(g) denied the pension income deduction.”
6. Paragraph 47 is amended by adding the following after item (c) thereof:
“For taxation years of trusts commencing after 1987, the following provisions of subdivision k are also inapplicable
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to a trust governed by an employee benefit plan or to an employee trust: (d) subsection 104(5.2) relating to resource properties, and (e) subsections 104(13.1) and 104(13.2) dealing with rules for designating certain distributions that will not be taxable in the hand of beneficiaries.”