CRA clarifies that solely future-looking employee incentive plans can still result in annual SDA assessments
In a companion I7 memo to 2020-0850281I7 discussed in the previous post, the Directorate made a number of comments to clarify that prior statements did not indicate “that solely forward-looking or future-orientated incentive plans with certain characteristics are not salary deferral arrangements (‘SDAs’)”:
- Prior statements “made strictly in the context of ATR-45 SAR Plans” should not be “misconstrued as implying that a right to receive an amount after the end of a particular year is not created until the units of any given incentive plan are exercisable… .”
- A determination at any year end as to whether the rights of a plan participant give rise to a SDA turns on whether (i) the employee has a right to a deferred amount (which may be the case even for an ATR-45 SAR plan); and (ii) the tax-deferral purpose test referenced in the SDA definition is met (which generally is not considered to be the case for an ATR-45 SAR plan, and is a question of fact for other plans).
- Respecting (i), “it is possible for a right to a deferred amount to arise under an incentive plan even before the units of that plan are exercisable” – and the “fact that the value of the units of an incentive plan is subject to change prior to the occurrence of a triggering event does not … in and of itself, give rise to an indeterminable amount before the occurrence of the triggering event” so as to preclude a preliminary deferred amount being determined at a year end before the triggering event.
- “The fact that units in other types of incentive plans have no intrinsic value when granted is not a sufficient basis to conclude that the plan is not a SDA at inception, nor to conclude that the plan need not be tested on an annual basis.”
Neal Armstrong. Summary of 10 July 2020 Internal T.I. 2020-0841961I7 under s. 248(1) – SDA.