CRA states that the SDA exception for SAR plans is unavailable where dividend equivalents are paid in cash

The share appreciation rights (SAR) plan of an employer corporation provides for dividend equivalents on SAR units that are satisfied by way of cash payments made annually to employee participants.

CRA indicated that if the current vesting period for a SAR unit granted under the plan was extended from three years to five years (so that the three year bonus plan safe harbour in para. (k) of the salary deferral arrangement definition no longer applied), then the plan would not be considered to come within CRA’s accommodation of SAR plans, so that the SDA rules could apply. CRA stated:

If a SAR plan provides for dividend equivalents to be paid in cash on an accelerated basis (such as annually or after each dividend payment date) without the whole of the corresponding unit being redeemed, the CRA general position will cease to apply with effect from the time that the employee becomes entitled to receive the first such dividend equivalent payment. This is because, in such a case, the units would not be considered to be solely for future services.

Neal Armstrong. Summaries of 14 May 2019 External T.I. 2017-0737571E5 under s. 248(1) - salary deferral arrangement and s. 6(14).