12 December 2001 External T.I. 2001-0112955 - RRSP EARNED INCOME SAR

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Is income from a Stock Appreciation Rights plan "earned income" for the purpose of calculating the contribution limit for an RRSP?

Position: Yes.

Reasons: Income from a SAR is income from an office or employment in the year of receipt within the meaning of "earned income" contained in subsection 146(1).

XXXXXXXXXX 			2001-011295
G. Kauppinen
December 12, 2001

Dear XXXXXXXXXX:

Re: Registered Retirement Savings Plans ("RRSP") - "Earned Income"

This is in reply to your letter dated November 19, 2001 regarding earned income for the purpose of calculating the contribution limit for an RRSP.

You ask whether income from a stock appreciation rights plan (a "SAR") is earned income.

Opinions concerning proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. For more information concerning advance tax rulings, please refer to Information Circular 70-6R4 dated January 29, 2001, issued by the CCRA. Copies of information circulars and interpretation bulletins are available from your local tax services office or on the Internet at the following site - http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. However, we can provide you with the following general comments.

Our Comments

Usually, under a SAR, an employer grants rights (SARs) to an employee in the form of notional shares, "share equivalent units" or "phantom shares" of the employer corporation. When the SARs have vested in the employee, the employee is entitled to exercise the SARs for a cash payout by the employer which is calculated by reference to the difference between the market value of the employer corporation shares at the time the SARs were granted to the employee and the market value of the employer corporate shares as the time that the employee exercises his or her SARs.

The cash payout upon the exercise of SARs is "income from an office or employment" to the employee in the year that the cash is received and as such is "earned income" within the meaning of subparagraph (a)(i) of the definition contained in paragraph 146(1) of the Income Tax Act (the "Act"). Consequently, income from the exercise of a SAR is included in earned income for the purpose of the amount in "B" of the definition of the annual "RRSP deduction limit" contained in subsection 146(1) of the Act.

SAR income which is received by a retired individual is still earned income for the purpose of calculating the annual RRSP deduction limit and may be reported as "Other Income" on Box 28 of a T4A slip prepared by the retired individual's former employer.

We trust our comments will be of assistance to you.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch