5 April 1990 Ministerial Correspondence 74814 F - Deferred Compensation Plan

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.

SUBJECT: 24(1) Deferred Compensation Plan (the "Plan")

This is in reply to your memorandum of March 16, 1990.

Since completed transactions concerning specific taxpayer are involved, we prefer that the taxpayer's query be processed through your office or the Edmonton District Taxation Office.  We are thus addressing our reply to you rather than directly to the taxpayer as requested.

Our understanding of the situation is as follows:

1.     

2.     

3.     24(1)

4.     

5.     24(1)

OUR COMMENTS

Our review of the Plan indicates that the requirement in (b) of the coming-into-force provisions of the SDA definition was satisfied such that the deferrals referred to in 5(b) above were appropriate.

Since no employer contributions were involved, paragraph 6(1)(g) of the Act is not applicable.  This has particular relevance to the accrued interest in that the Plan is an investment contract and the interest accrual rules in subsection 12(4) of the Act apply.  Thus, part or all of the interest may be taxed prior to its actual receipt.

In order to tax the deferred amounts prior to their actual receipt, we would have to successfully argue that they have been constructively received.  Constructive receipt would occur where, for example, the employee is entitled to receive the deferred amounts but voluntarily chooses not to.  It is our view that this would be the case only if on transferring to the new corporation, one of the events listed in 3 above occurred.  This is a question of fact.  Given the comments in paragraph 4 of IT-337R2 on when someone is considered to have retired, we are of the view that the event in 3(a) above did not occur on the transfer.  This leaves the event in 3(c) above as the only possible listed event that could have occurred on the transfer.

During the telephone conversation with 19(1) he expressed the view that 24(1).  If so, they are entitled to receive the amount owing to them under the Plan and should include that amount in their 1990 income, regardless of whether or not it is received by them in that year, on the basis that they have constructively received it.

We suggest that you have officials of the Edmonton District Office clarify the above points and ensure that in any event the interest accrual rules are applied to the accrued interest.

for DirectorFinancial Industries DivisionRulings Directorate