Section 32.1 — Income Tax Act: Employee benefit plan deductions

Where a taxpayer has made contributions to an employee benefit plan in respect of the taxpayer’s employees or former employees, the taxpayer may deduct in computing the taxpayer’s income for a taxation year such portion of an amount allocated to the taxpayer for the year under subsection 32.1(2) by the custodian of the plan as does not exceed the amount, if any, by which the total of all amounts each of which is a contribution by the taxpayer to the plan for the year or a preceding year exceeds the total of all amounts each of which is an amount in respect of the plan deducted by the taxpayer in computing the taxpayer’s income for a preceding year, or an amount received by the taxpayer in the year or a preceding year that was a return of amounts contributed by the taxpayer to the plan; and where at the end of the year all of the obligations of the plan to the taxpayer’s employees and former employees have been satisfied and no property of the plan will thereafter be paid to or otherwise be available for the benefit of the taxpayer, the amount, if any, by which the total of all amounts each of which is a contribution by the taxpayer to the plan for the year or a preceding year exceeds the total of all amounts each of which is an amount in respect of the plan deducted by the taxpayer in computing the taxpayer’s income for a preceding year, or, by virtue of paragraph 32.1(1)(a), for the year, or an amount received by the taxpayer in the year or a preceding year that was a return of amounts contributed by the taxpayer to the plan. Every custodian of an employee benefit plan shall each year allocate to persons who have made contributions to the plan in respect of their employees or former employees the amount, if any, by which the total of all payments made in the year out of or under the plan to or for the benefit of their employees or former employees (other than the portion thereof that, by virtue of subparagraph 6(1)(g)(ii), is not required to be included in computing the income of a taxpayer), and all payments made in the year out of or under the plan to the heirs or the legal representatives of their employees or former employees exceeds the income of the plan for the year. For the purposes of subsection 32.1(2), the income of an employee benefit plan for a year in the case of a plan that is a trust, is the amount that would be its income for the year if section 104 were read without reference to subsections 104(4) to 104(24);

and in any other case, is the total of all amounts each of which is the amount, if any, by which a payment under the plan by the custodian thereof in the year exceeds in the case of an annuity, that part of the payment determined in prescribed manner to have been a return of capital, and in any other case, that part of the payment that could, but for paragraph 6(1)(g), reasonably be regarded as being a payment of a capital nature.