27 May 1997 Internal T.I. 9709717 - BANKED OVERTIME

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:

1.Is specific plan to bank overtime an SDA?

2.What are the employer's requirements to report deferred amounts and withhold thereon?

3. Are the amounts similar to bonuses?

Position:

1. Question of fact.

2. as provided in Employers Guide.

3. Not generally.

Reasons:

1.The plan already exists. The TSO may review the plan and make a determination based on the facts.

2.Published in Employers Guide to payroll Deductions

3.We do not consider banked overtime to be similar to a bonus.

							May 27, 1997

	Saint John Tax Services Office	Headquarters
R. Léger					Financial Industries
	Director					  Division
							Wayne C. Harding
	Attention: R. Blanchard			(613) 957-8953 

970971

Banked Overtime

This is in reply to your memorandum of March 24, 1997 in which you referred a letter from XXXXXXXXXX to us for reply.

XXXXXXXXXX is asking if they are required to report amounts held in a banked overtime arrangement and if they are required to remit amounts to the Department with respect to the arrangement. The arrangement they are inquiring about is, however, already in existence and our directorate can not provide any rulings with respect to it. Any determinations of the nature of the plan must be provided by your office. We can however provide you with the following comments that may be of assistance to you when you reply to XXXXXXXXXX.

The letter referred to by XXXXXXXXXX, confirms that if an employee has a right at the end of a year to receive an amount in respect of banked overtime and it is reasonable to consider that one of the main purposes of the creation of the right was to postpone the payment of income tax in the year, then the deferred amount would be subject to the salary deferral arrangement (SDA) rules in the Income Tax Act (the "Act"). A determination of the employees' intent is a question of fact and this can only be determined after a review of all relevant information is completed. However, the information provided in XXXXXXXXXX letter is not sufficient to make such a determination.

In respect of XXXXXXXXXX first two questions, if upon further review, your office determines that the plan is an SDA, the Department's publication "Employers Guide to Payroll Deductions" indicates that the employer would be required to report any amounts deferred in a year and withhold amounts in respect of the deferred amount.

In respect of their third question, if an employee has a right at the end of a year to receive a deferred amount, as described above, it will not matter that the employee may also elect to actually take the time off instead.

In respect of their fourth question, the "three year criteria" they refer to is a reference to the provisions of paragraph (k) of the definition of a "salary deferral arrangement" in subsection 248(1) of the Act. This paragraph provides that the definition does not apply to a plan or arrangement that provides the employees with a right to receive a bonus or similar payment in respect of services rendered in a taxation year to be paid within 3 years following the end of the year. While it is again a question of fact what the nature of any particular payment is, in general we would not consider amounts received in respect of overtime to be similar to bonuses.

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