Thank you, Mr. Chair.
Mr. Chair, this amendment delays provisions related to excess employee profit sharing plan amounts.
If I may, section 8 of the act provides for the deduction of various amounts in computing income from office or employment. Proposed paragraph 8(1)(o.2) introduces consequentials on the introduction of proposed section 207.8, which generally imposes a special tax on excessive allocations to specified employees, as defined in subclause 24(1), under employee profit sharing plans.
Also, proposed paragraph 8.1(o.2) allows a taxpayer to deduct an amount that is an excess EPSP amount, as defined in proposed subsection 207.8(1), in computing income for a taxation year. In general terms, under proposed subsection 207.8(1), a taxpayer's excess EPSP amount, in respect of an employer for a taxation year, is the portion of the employer's total contributions to an EPSP allocated to the taxpayer for the year and that exceeds 20% of the taxpayer's total other employment income received in the year under the employer.
From the “Introduction to Federal Income Taxation in Canada”, 31st edition, under the paragraph entitled “Employer's contribution under a deferred profit sharing plan”:
Employer contributions to a deferred profit sharing plan...are deductible within limits. An employer may deduct an amount which is paid in the year or within 120 days after the end of the year to a trustee to the extent that the amount was paid in accordance with the terms of the plan and was not deducted by the employer in a previous year.
A formula is provided to determine the amount of an employer's contribution to a DPSP that is deductible. Generally, where there is no RPP, the employer's contribution limit in respect of an employee for a year is the lesser of:
(a) one-half of the money purchase dollar limit for the year, as discussed [previously]; and
(b) 18% of the employee's compensation (as defined) for the year.
Therefore, to be deductible in a year, contributions should not exceed the lesser amount computed.
Where an employer participates in both a DPSP and an RPP for the benefit of an employee, the employer's total contribution to both plans is limited. It is rare for an employer to provide both a DPSP and an RPP together.
I draw the committee's attention as well to an article published in The Medical Post by Manfred Purtzki on this issue: “Maximize cash flow with an employee profit sharing plan”. In this article, Mr. Purtzki says:
While the Employee Profit Sharing Plan is not as popular as other tax shelters such as RRSPs or Tax Free Savings Accounts and family trusts, it is an effective tax planning tool for doctors who wish to defer taxes, enhance income splitting with family members, and avoid Canada Pension Plan (CPP) and Employment Insurance (EI) premiums. EPSP is an arrangement where the employer, usually the medical corporation, makes payments with reference to the employer's profits to a trustee for the benefit of those employees who are members of the plan. It is important to note that not all employees of the practice must participate in the EPSP. Further, it can be restricted to just family members, as long as they have a bona fide employment relationship with the medical corporation.
Mr. Chair, according to Mr. Purtzki, setting up an EPSP is easy. It requires a trust document, a director's resolution, in the case of the employer being a corporation, and a separate bank account.
The EPSP, according to this article, allows for a 12-month tax deferral, and any amounts paid by the corporation to the EPSP within 120 days after the taxation year are deductible in that year.