Principal Issues: Paragraph 9 of IT-529 indicates that if an employee forgoes an amount to which the employee is entitled, the amount of remuneration forgone gives rise to an income inclusion. In the alternative, this paragraph indicates that when a contract of employment is renegotiated upon the expiry of a former employment contract to incorporate a decrease in the level of salary or wages to be paid to an employee over the term of the new contract, the decrease in salary will not give rise to an income inclusion. In relation to these comments, we have been asked about three approaches with respect to establishing a flexible employee benefit plan.
(A) In the first approach, the employer would start the flex program at the beginning of the employer's business year for nonunion employees when compensation levels and other conditions of employment would normally be renegotiated.
(B) In the second scenario, the employer would terminate all employment contracts for its non-union employees and offer new contracts, which would establish flex credit formulas and wages at the appropriate levels.
(C) In the third approach, the employer would start the program for union employees as part of the collective bargaining process upon the expiry of the current collective agreement.
With respect to each approach, the issue is whether any salary has been forgone or whether contracts of employment has been renegotiated at the expiry of the former contracts.
Position: (A) The first approach should not give rise to any adverse tax consequences to the employees.,
(B) As in the case of A, this should not give rise to any adverse tax consequences to the employees. However, we have also indicated that it is a question of fact whether the old contracts have been terminated.
(C) It is our general position that once a collective agreement has expired and a new one negotiated to establish the level of wages and benefits in a flex program, there would likely be no adverse consequences to the employee.,
