8 August 1995 External T.I. 9517255 - SAR AND SDA 3 YEAR DEFERRAL

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.

Principal Issues: If a SAR becomes an SDA will 248(1) "SDA" (k) apply?

Position TAKEN: No

Reasons FOR POSITION TAKEN: Bonus would be in respect of the term of the SAR and not a taxation year so it wouldn't fit (k) of the SDA defn.

                 		               951725
XXXXXXXXXX	                      M.P. Sarazin

Attention: XXXXXXXXXX

August 8, 1995

Dear Sirs:

Re: Share Appreciation Rights ("SARs") and Salary Deferral Arrangements ("SDAs")

This is in reply to your letter dated June 13, 1995, wherein you requested that, contrary to the position expressed in Question 26 of the 1988 Revenue Canada Roundtable and in our letter to you dated September 14, 1994 (file 5-942283), we consider your arguments supporting a position that the exception from the SDA rules found in paragraph (k) of the definition of an SDA in subsection 248(1) of the Income Tax Act (the "Act") should apply to permit an employee to defer receipt of an amount payable under a SAR plan.

Paragraph (k) of the definition of an SDA in subsection 248(1) of the Act refers to "a plan or arrangement under which a taxpayer has a right to receive a bonus or similar payment in respect of services rendered by the taxpayer in a taxation year to be paid within 3 years following the end of the year" (emphasis added). It is the Department's view that a right to receive a bonus under a SAR generally accrues in respect of the services rendered by the taxpayer over the whole term of the SAR plan and not in respect of a particular taxation year. Consequently, the amount would not qualify as a bonus under a plan or arrangement as contemplated by paragraph (k) of the definition of an SDA in subsection 248(1) of the Act.

We confirm that the position expressed in Question 26 of the 1988 Revenue Canada Roundtable and in our letter to you dated September 14, 1994 continues to reflect the Department's position with respect to the treatment of SARs as SDAs.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch