12 April 2001 External T.I. 2001-0072445 - PARTNERSHIP SDA OR EBP ARRANGEMENT

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Will an arrangement that allows for the employer and employee to contribute to a trust and the amounts held in the trust grow based on the earnings of the employer result in the arrangement being an SDA or an EBP for purposes of the Act?

Position: Question of fact.

Reasons: The proposed transactions should be addressed through a submission for an advance income tax ruling.

XXXXXXXXXX 2001-007244
M. P. Sarazin, CA
April 12, 2001

Dear XXXXXXXXXX:

Re: Phantom Unit Plan and Salary Deferral Arrangement

This is in reply to your letter of February 28, 2001, requesting our views as to whether a plan or arrangement would constitute an employee benefit plan or a salary deferral arrangement for purposes of the Income Tax Act (the "Act"). You ask whether an employee of a partnership could defer receiving a portion of his or her salary where the deferred salary is invested in notional units of the employer partnership.

Comments

Confirmation of the tax consequences associated with completed transactions are provided by the relevant tax services office. Opinions concerning proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. For more information concerning advance tax rulings, please refer to Information Circular 70-6R4 dated January 29, 2001, issued by the Canada Customs and Revenue Agency (the "Agency"). Copies of information circulars and interpretation bulletins are available from your local tax services office or on the Internet at the following site - http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. However, we can provide you with the following general comments.

The determination of whether a specific arrangement will constitute an employee benefit plan ("EBP") or a salary deferral arrangement ("SDA") for purposes of the Act is a question of fact. Where an employer pays an amount to a trust for the benefit of an employee and the employee has an immediate right to the amount, the purpose of the arrangement will determine whether the arrangement will be treated as an EBP or an SDA for purposes of the Act. If it is determined that one of the main purposes of the arrangement is to postpone the taxes payable in respect of the amount paid by the employer, the arrangement would be an SDA for purposes of the Act.

The fact that an arrangement may be designed to operate in a manner that is similar to the exception to the SDA provisions provided under paragraph 6801(d) of the Income Tax Regulations (the "Regulations") will not result in the particular arrangement being excluded from the SDA provisions. With respect to the exception provided for in paragraph 6801(d) of the Regulations, only arrangements that fit clearly within those provisions will be excluded from the definition of an SDA. Consequently, an arrangement that provides for the investment of deferred salary in notional units of an employer partnership will not be exempted from being an SDA under paragraph 6801(d) of the Regulations.

We trust these comments will be of assistance.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate