12 February 1996 External T.I. 9530635 - SDA, NON-PROFIT ORG EMP SAV 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.

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:

Would an employee savings plan implemented by a non-profit organization be considered an SDA?

Position:

Question of Fact

Reasons:

Have to look at the main purposes of the arrangement.

									953063
XXXXXXXXXX							M.P. Sarazin

Attention: XXXXXXXXXX

February 12, 1996

Dear Sirs:

Re: International Organization Remuneration Package

This is in reply to your letter dated November 20, 1995, wherein you requested our comments regarding the taxation of a non-funded employee savings plan ("ESP") that a non-profit organization, within the meaning assigned by paragraph 149(1)(l) of the Income Tax Act (the "Act"), is proposing to establish as part of its members' remuneration package.

Comments

As the interpretation you seek relates to proposed transactions to be undertaken by a specific taxpayer, we bring to your attention Information Circular 70-6R2 dated September 28, 1990, and the Special Release thereto issued on September 30, 1992, issued by Revenue Canada, Customs, Excise and Taxation. Confirmation of tax consequences with respect to proposed transactions involving a specific taxpayer will only be provided in response to a request for an advance income tax ruling. If you wish to obtain an advance income tax ruling with respect to specific transactions which are contemplated, a written request for an advance income tax ruling can be submitted in accordance with the Information Circular. Nevertheless, we can provide you with the following general comments.

In order to determine whether any particular arrangement is a salary deferral arrangement, we must consider the definition found in subsection 248(1) of the Act. Briefly stated, a salary deferral arrangement is a plan or arrangement (whether funded or not) between an employer and an employee where an employee is given a right to receive an amount under the arrangement, and one of the main purposes for the creation or existence of the right is to postpone the tax payable under the Act by the employee in respect of salary or wages for services rendered in the year or preceding year. However, it is a question of fact as to whether the deferment of tax is one of the main purposes of any particular arrangement.

Where a Canadian resident employee of an international organization pays a tax levy to the organization and, as a consequence, is entitled to a tax credit in accordance with subsection 126(3) of the Act, you are of the view that the employee will have no tax payable under the Act. Accordingly, you are of the view that an ESP in which the Canadian resident employee participates could not be an SDA because one of the plan's main purposes would not be to postpone taxes payable under the Act.

In our opinion, an ESP could be an SDA in these circumstances. While in general, it may be expected that a tax credit under subsection 126(3) of the Act will offset the taxes otherwise payable in respect of an employee's income from employment with an international organization, it can not be stated with certainty that this will always be the case. Consequently, we can not provide a general position with respect to whether an ESP would not be an SDA in such circumstances. Furthermore, a determination of the nature of an ESP in such a situation would most likely have to be made on a year by year basis.

We regret that we are not able to provide you with any general comments with respect to whether your arrangement would qualify as a "retirement compensation arrangement" and whether a payment from the arrangement would qualify as a "retiring allowance". The expressions "retirement compensation arrangement" and "retiring allowance" have the meaning assigned by subsection 248(1) of the Act.

We trust the above comments will be of assistance to you.

Yours truly,

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