CRA found that the SDA rules applied to a purported DSU that had a potential change-of-control redemption trigger (and continues to frown on Code s. 409A triggers)

CRA found that a purported deferred share unit plan did not come within the Reg. 6801(d) safe harbour, and was a salary deferral arrangement, since the terms of the plan provided for the potential redemption of units in the event of a change of control of the corporate employer (which would not necessarily result in the employee’s termination) or, in the case of U.S. participants, on the occurrence of a retirement as contemplated under Code s. 409A. 2015-0610801C6 would have grandfathered units that were credited to a participant's account after November 24, 2015 if the plan were offside by virtue only of its having the Code 409A triggering event. However, here the participants were required to recognize income on a current basis under ss. 6(11) and (12) because the plan also was offside due to the potential change-of-control triggering event.

For example, if an advance election has been made by a participant in the 2014 taxation year to have the plan apply to a bonus earned and payable in 2015 and deferred units were thereby credited to his or her account in 2015, the participant would then include in 2015 income the value of units received in respect of the deferred bonus and any dividend equivalents to which the participant was entitled at the end of 2015. If an earlier year was involved that was statute-barred, CRA would assess the s. 6(11) and (12) amounts for the first year that was not statute-barred.

Neal Armstrong. Summaries of 21 November 2016 Internal T.I. 2016-0641961I7 Tr under Reg. 6801(d) and s. 6(11).