CRA rules on a SERP that maintains the 18% RRSP contribution amount above the RRSP dollar limit
A Canadian public corporation had a group RRSP arrangement under which it approximately matched contributions of employees (“Members”) to the group RRSP. It was now proposed that an unfunded supplemental employee retirement plan (SERP) be created under which the corporation annually will notionally credit to an account for each Member an additional amount equal to 18% of the employment earnings of the Member in excess of those earnings engaging the RRSP dollar limit (subject to an overall cap on the corporation’s contributions, including under the group RRSP, of 15% of the Member’s employment earnings (or 10% in the case of non-executive employees).) The amount credited to the Member’s is notionally increased each year based on 5-year Canada bond yields; and on termination of employment, the Member can determine whether to receive payments based on the amount in the account over 10 years, or as a lump sum.
CRA ruled that there will be no recognition of income by the Member until the times of the payouts (e.g., the SERP is not a salary deferral arrangement), and that there can be a corresponding deduction on payout to the corporation.
Neal Armstrong. Summary of 2019 Ruling 2019-0817751R3 under s. 248(1) – salary deferral arrangement.