CRA provides an SDA ruling on a SERP

CRA ruled on a supplemental employee retirement plan ("SERP") to provide benefits to senior employees based on the portion of their base salary (up to a cap) in excess of their maximum pensionable earnings for purposes of the company defined benefit registered pension plan (RPP). Each month, 1/12 of this eligible portion of their base salary would be credited to a notional account and, at year end, the notional balance would be adjusted for a notional positive or negative return based on that achieved for the year under the RPP. Upon retirement, a participant could elect to receive their notional account balance as a single lump sum payment, or in annual instalments over a period not exceeding 10 years, with the funding in either case to come only out of the employer’s general revenues.

CRA ruled that the SERP will not be a salary deferral arrangement (SDA) or retirement compensation arrangement, and that the only income inclusions to the participants would be pursuant to s. 56(1)(a)(i) of the payments to them. Regarding the SDA ruling, the CRA summary stated:

The SERP will provide for reasonable pension benefits and therefore none of the main purposes will be to postpone the payment of tax.

Neal Armstrong. Summary of 2021 Ruling 2021-0887611R3 under s. 248(1) – SDA.