1 June 1993 External T.I. 9307455 F - Salary Deferral Arrange - Share Appreciation Rights

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.

XXXXXXXXXX 

Attention:  XXXXXXXXXX

Dear Sir/Madam:

This is in reply to your letter of March 15, 1993, and is further to our letter of January 13, 1993 concerning your advance income tax ruling request (3-923684) that was withdrawn as acknowledged in our letter of March 5, 1993.

The normal attributes of a share or stock appreciation rights ("SAR") plan is that it entitles the employee to receive only the increase in the value of the underlying share or phantom share. As explained at the 1988 Canadian Tax Foundation Conference, it is the Department's position that a SAR plan will generally not be considered to be a salary deferral arrangement ("SDA"). This position is based on the understanding that a SAR is normally granted in respect of the employee's future services, rather than in respect of the employee's current or past services which is a requirement in the SDA definition in subsection 248(1) of the Income Tax Act (the "Act").

The above comments apply regardless of the fact that a SAR might be exercisable (mature) at some definite future time while the holder is still employed, or that the exercise date is subsequently changed to an earlier date. However, in the year that a SAR is exercisable, it is the Department's position that a right is created in that year to receive an amount after the end of the year where the employee chooses not to exercise his right to receive the value thereof, and this right relates to services rendered in the year or a previous year. It is thus our view that in the normal SAR plan, it is only in the year that the SAR is exercisable that the plan could become an SDA. We say "could" because it would then have to be determined whether or not one of the main purposes for the creation or existence of the right is to postpone tax payable under the Act.

As indicated in Information Circular 70-6R2, the Department does not provide advance income tax rulings on plans that are in place. It is for this reason and the reasoning given above that we were limited to saying

(a)     that if your plan is currently not an SDA, the proposed amendment to the exercisable date would not of itself, as indicated above, change that status, and

(b)     whether or not the SDA rules would apply in the year the SAR is exercisable would depend upon whether or not one of the main purposes for not exercising the right to receive the value of the SAR was to postpone tax payable under the Act. This is a question of fact that cannot be determined before that year and thus is not something on which we can provide an advance ruling.

We trust our comments are of assistance.

Yours truly,

for DirectorFinancial Industries DivisionRulings DirectorateHAA7680-4-1