3 December 2003 External T.I. 2003-0035115 - SDA (K) EXEMPTION

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 ISSUE:

Whether a plan would meet paragraph (k) of the SDAs definition if the actual receipt of the payment under a particular plan is made at the start of the fourth year (e.g. January 2) but the amount is determinable and payable at the end of the third year?

Position: No.

REASON:

The law requires that the amount has to be paid within the three years period following the calendar year in which the right to receive the bonus arose.

XXXXXXXXXX 							2003-003511
L. J. Roy, CGA
December 3, 2003

Dear XXXXXXXXXX:

Re: Salary deferral arrangement ("SDA")

This is in reply to your email of August 20, 2003 wherein you requested our opinion on the application of paragraph (k) of the SDA definition where the actual receipt of the payment under a particular plan is made at the start of the fourth year (e.g. January 2), where the amount is determinable and payable at the end of the third year.

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R5 entitled Advance Income Tax Rulings, dated May 17, 2002. Copies of the information circular, interpretation bulletins and guides are available at your local Tax Services Office or on the Internet http://www.ccra-adrc.gc.ca/tax/technical/incometax/menu-e.html. However, we are prepared to provide you with the following general comments, which may be of assistance.

Paragraph (k) of the definition of an SDA in subsection 248(1) of the Act refers to "a plan or arrangement under which a taxpayer has a right to receive a bonus or similar payment in respect of services rendered by the taxpayer in a taxation year to be paid within 3 years following the end of the year". It is our view that a deferred bonus payable under an arrangement in respect of a fiscal period that ends in a particular calendar year will be excluded from the SDA definition if the arrangement provides that the bonus will be paid within the three year period following the calendar year in which the right to receive the bonus arose. Consequently, if a plan or arrangement provides that the payment of the bonus in respect of a fiscal period is made at the start of the fourth calendar year, it is our view that such plan would not satisfy the conditions of paragraph (k) of the definition of an SDA.

However, if the plan or arrangement provides that the amount is paid with the three year period but the employer cannot abide to that requirement, it may be appropriate to conclude that the plan or arrangement ceased to meets the conditions of paragraph (k) of the definition of an SDA at that point in time and any amount payable would have to included in the employee's income under 6(11) of the Act at that time.

These comments are provided in accordance with the guidelines set out in paragraph 22 of Information Circular IC 70-6R5 dated May 17, 2002, issued by the CCRA and are not considered binding on the CCRA.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch