23 April 1992 Income Tax Severed Letter 9130205 - SDA Exceptions as RCAs

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 Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

SUBJECT: SDA EXCEPTIONS AS RCA'S SECTION: 248(1) - SDA, 248(1) -
RCA, REG 6801(d)]

5-913020
XXX P. Spice
(613) 957-8953

Attention: XXX

April 23, 1992

Dear Sirs:

RE: Application of Retirement Compensation Arrangement ('RCA") Rules to Exceptions From Salary Deferral Arrangements ("SDA's")

We are writing in reply to your letter of October 29, 1991, in which you ask whether a plan or arrangement which was excepted from the definition of an SDA in subsection 248(1) of the Income Tax Act (the "Act") could be considered to be an RCA within the subsection 248(1) definition.

It is our view that a plan or arrangement otherwise considered an SDA but for its explicit exclusion from the SDA definition might still be found to be an RCA.

With respect to a phantom stock plan under Regulation 6801(d) of the Act, furthermore, it is our opinion that the bonus payments to which you refer could not be contributed to such a plan. The only amounts which may be paid under a Regulation 6801(d) plan are amounts calculated by reference to the increase in share values in a one year period ending on the date of an employee's death, retirement or loss of employment. Therefore, a trust which is funded by bonus payments calculated by reference to actual dividend distributions might be considered a retirement compensation arrangement if the funding is "in connection with benefits that are to be or may be received or enjoyed after" retirement or loss of employment. Please note that the simple fact that an amount may be paid out of the fund after retirement does not mean the fund is an RCA. The purpose of the funding must be determined. The same is true for an SDA. Amounts which are salary or wages remain salary or wages even if paid after retirement and, thus, a fund containing these amounts can be an SDA if the right to the salary or wages arose in a year prior to receipt and the reason the salary or wages was not paid in the prior year was to defer taxation.

With respect to the three-year bonus plan exception from the SDA definition, it follows from our previous comments that if the purpose of the plan is to fund benefits after retirement, then it cannot escape the RCA rules. If the plan was set up to fund a right to receive within three years a bonus in respect of services rendered by the taxpayer in the year and not for the purpose of funding retirement benefits, then it will be exempt from the SDA rules and not subject to the RCA rules even thought the three years end in a year after retirement.

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 70-6R2. Where the particular transactions are completed, the enquiry should be addressed to the relevant District Taxation Office. The foregoing comments are, therefore, of a general nature only, and are not binding on the Department.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate