Principal Issues: Whether the conversion of salary and/or vacation entitlements to flex credits after the initial commencement of a flexible employee benefits program would give rise to an income inclusion.
Position: Yes.
Reasons: As noted in IT-529, taxable employee entitlements such as vacation, salary, or the right to a salary increase may not be converted to non taxable benefits. Where a plan permits an employee to convert an amount of salary, wages or other taxable employee entitlement to something of value, the employee will be taxed on that conversion up to the amount of the cash received or the market value of the benefit received at the time of conversion in accordance with subsection 5(1) of the Act and IT-529.
