27 October 1995 External T.I. 9521545 - SDA EXCLUSION FROM DEFINITIONS OF RCA AND EBP

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:

Reason for difference in SDA exclusion from EBP and RCA definitions; 2) meaning of comments re election in para. 11 of IT-502.

Position TAKEN:

1)So a grandfathered SDA will be treated as an EBP but not as an RCA;

2)explained meaning of comments - see opinion.

Reasons FOR POSITION TAKEN:

1)Wording of transitional provision for SDA;

2) routine.

XXXXXXXXXX 952154

Attention: XXXXXXXXXX

October 27, 1995

Re: Exclusion from Definitions of "Employee Benefit Plan" and "Retirement Compensation Arrangement"

This is in reply to your letter of August 10, 1995, in which you ask us for our views concerning the difference in the wording of paragraphs 248(1)(c.1) of the definition of "employee benefit plan" (EBP) and 248(1)(k) of the definition of "retirement compensation arrangement" (RCA) as provided in the Income Tax Act (the Act).

It is our understanding that the reference in the RCA definition to a salary deferral arrangement (SDA) "whether or not deferred amounts thereunder are required to be included as benefits under paragraph 6(1)(a) "refers to what is commonly referred to as a grandfathered SDA. To explain, certain amounts which would be deferred amounts under the SDA will not be taxed as such because of the exemption from taxation contained in the transitional provisions in the Act relating to written agreements made before February 26, 1986. The arrangement, however, will still be considered an SDA and, thus, will be exempt from the RCA definition but will not be excluded from the EBP definition.

With respect to your second point, taxation of a deferred amount under an SDA is provided for under paragraph 6(1)(a) of the Act to the extent that the amount is required to be so included under subsection 6(11). The income inclusion does not arise through the sole operation of subsection 6(11) of the Act.

Lastly, the comments in paragraph 11 of Interpretation Bulletin IT-502 ("Employee Benefit Plans and Employee Trusts") refer to an amount to which, by virtue of an election, the employee has no right in the year and to which the employee had no right prior to the election. Thus, the SDA rules do not apply.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch