Oct 03, 2016
the CRA views these entities to be corporations for Canadian… Read more »
“EPSP’s do not work in all situations.”
There have been a number of recent publications stating that Employees Profit Sharing Plans (“EPSP’s”) are a good way to avoid paying Canada Pension Plan payments relating to salaries.
Section 144 of the Income Tax Act states that the payments to an EPSP must be computed by reference to an employer’s profits from the employer’s business. As well, the trustee is required to annually allocate the contributions received to the beneficiaries of the trust. The CRA has recently reviewed a number of EPSP’s and has raised some concerns.
There are a number of situations where the only beneficiary of the trust is the shareholder/manager of the company. The CRA is challenging these situations. The CRA’s view is that these plans are improperly administered for reasons such as those listed below:
Based on the above comments, the CRA is reassessing corporations for CPP and related interest.
This appears to be a “project” that the CRA has undertaken. Careful review should be made of all EPSP’s to ensure that they meet the necessary tests.
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