2 October 1989 External T.I. 58445 F - Employee Benefit Plans

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.

October 2, 1989

Dear Sirs:

Re:  Employee Benefit Plans ("EBP")

This is in response to your letter of July 12, 1989 addressed to the Registered Pension and Deferred Income Plans Division which was forwarded to us for reply.

We agree that an employee benefit plan (EBP) that meets the definition of a salary deferral arrangement (SDA) will not be subject to the retirement compensation arrangement (RCA) rules even though no amount is required to be reported in the employee's income because of the grandfathering provisions of the SDA definition in subsection 248(1) of the Income Tax Act. Such a plan would therefore continue to be subject to the EBP rules of the Act.

However, it is a question of fact whether a plan that was an EBP becomes an SDA or an RCA. If the EBP becomes an SDA, the grandfather treatment applies in respect of a taxpayer to the extent that the deferred amounts relate, or may reasonably be considered to relate, to services rendered by the taxpayer before July, 1986. Also excluded from the rules governing SDAs are amounts under plans or arrangements to the extent that deferred amounts relate, or may reasonably be considered to relate, to services rendered after June, 1986 where both of the following conditions are met:

-      the employee is legally obligated to defer payments of these amounts to the employee pursuant to an agreement in writing made with his employee or former employee before February 26, 1986; and

-      the employee cannot, at anytime after June 1986, cancel or otherwise avoid that obligation.

Where an EBP meets the definition of an RCA, the EBP is referred to as the "Existing Arrangement" and another plan (referred to as a "Statutory Arrangement") is deemed to be established on the day that is the earlier of January 1, 1988 and the day after October 8, 1986 on which the terms of the Existing Arrangement have been materially altered. It is a question of fact whether such terms have been materially altered. The Statutory Arrangement is deemed to be a separate plan independent of the Existing Arrangement. The Existing Arrangement is deemed not to be an RCA within the definition of that expression in the Act. All contributions made under the EBP after the establishment of the Statutory Arrangement and all property that can reasonably be considered to derive from those contributions are deemed to be property held in connection with the Statutory Arrangement and not in connection with the existing arrangement.

It would appear, from the limited information provided by you, that the four plans outlined in your letter would fall under the RCA rules on the earlier of the days discussed above.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate