21 October 1992 Income Tax Severed Letter 9225365 - Flex 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.

922536
24(1) M. Eisner
(613) 957-2138

Attention: 19(1)

October 21, 1992

Dear Sirs:

Re: Flex Benefit Credits

This is in reply to your letters of August 25, and September 10, 1992 concerning flexible employee benefit arrangements.

In your letter, you have referred to a flexible benefit arrangement under which a credit is available to each employee which can be used for non-taxable benefits, taxable benefits or received in cash. The flexible benefit arrangement is such that the amount of a credit allocated to an employee is contingent upon an employee's participation in a newly created savings plan. The amount of a credit that is allocated to an employee is $

24(1)

The employer's contribution to the savings plan is immediately taxable to the employee.

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On the basis that the above arrangement is acceptable, you have also referred to a savings plan which is the same as that set out above except that

24(1)

It is apparent that the information you provided us relates to a specific proposed transaction. Confirmation of the tax consequences of such a transaction will only be provided in response to a request for an advance income tax ruling. The procedures for requesting an advance income tax ruling are set out in Information Circular 70-6R2. We are, however, providing you with the following general comments.

Our Comments

It is the Department's position that, where employees choose to forego taxable amounts that they are otherwise entitled to receive in order to increase the amount of a credit in respect of a flexible benefit plan, the increase is taxable under subsection 5(1) or paragraph 6(1)(a) of the Income Tax Act (the Act). In the case of a situation where the allocation of flexible credits to employees is dependent upon their participation in a savings plan which is widely available to employees and in respect of which the employees and the employer make contributions, it is our view that this fact will not, in and by itself, result in the flexible credits being automatically taxable to the employees.

It is also our view that, if the entitlement to employee benefits under a savings plan, which is widely available to employees and involves employee and employer contributions, was changed for sound commercial reasons in connection with establishing a flexible benefit plan, the fact that employer contributions under the savings plan have been reduced in connection with the implementation of a flexible benefit plan will not, in and by itself, result in the amount of flexible credits allocated to employees being included in their incomes.

These comments are of a general nature. As indicated in paragraph 21 of Information Circular 70-6R2 dated September 28, 1991, these comments do not constitute an advance income tax ruling and are not binding on the Department.

We trust our comments will be of assistance to you.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch

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