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.
XXXXXXXXXX
Attention: XXXXXXXXXX
Dear XXXXXXXXXX
RE: Flexible Benefit Plans
We are replying to your letter of August 18, 1993 concerning the implementation of a flexible benefit plan. We apologize for the delay in responding.
You have asked for confirmation that the plan you propose to implement will not confer a taxable benefit on those employees who choose options which would otherwise be non-taxable if provided under a traditional non-flexible arrangement.
While there is nothing in your letter to suggest that the plan options you describe would be taxable, we do not confirm the tax implications resulting from proposed transactions except by way of an advance income tax ruling as described in Information Circular 70-6R2 "Advance Income Tax Rulings" dated September 28, 1990 and Special Release thereto dated September 30, 1992. However, we are prepared to offer the following general comments which may be of assistance to you.
Our position on flexible benefit plans was outlined at the 1991 Corporate Management Tax Conference in a speech given by Bryan Dath and the undersigned. As a general comment, it is our view that the taxability of a particular benefit is not altered by the fact that it is provided under the umbrella of a flexible benefit plan. For example, if a plan has a low- or no-interest mortgage feature, such a benefit will be taxable to the extent that it would have been included in the employee's income if it was offered outside the plan. Likewise, a benefit which would be non-taxable if offered outside the plan will ordinarily retain its non-taxable status if it is offered as an option under the plan.
However, in order to maintain the non-taxable status of such benefits, we would like to emphasize that the option to receive cash in exchange for the flex credits could only be available as an irrevocable election made before the beginning of the plan year and not as an option within a particular option or plan. In addition, the conversion of taxable remuneration such as salary, bonuses or vacation to flex credits would result in the value of those credits being included in the employee's income at the time the conversion is made.
We trust our comments will be of assistance to you.
Yours truly,
P.D. Fuoco for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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