2 September 1997 External T.I. 9715785 - SDA BONUS EXCEPTION

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 the exception at 248(1)(k) of the SDA definition apply, when the employee can defer receipt of a bonus?

Position:

Provided the election is made prior to actual or constructive receipt, an election to defer a bonus would not affect the exception.

Reasons:

Within the legislation.

9715785
XXXXXXXXXX Franklyn S. Gillman

Attention: XXXXXXXXXX

September 2, 1997

Dear Sirs:

Re: Salary Deferral Arrangements ("SDA")

This is in reply to your letter dated June 13, 1997 wherein you requested clarification as to the proper income tax treatment of including an amount characterized as a bonus in income when payment of the bonus is deferred by the employee.

Provided that the amount meets the exemption provision described at paragraph (k) of the definition of an SDA in subsection 248(1) of the Income Tax Act, the employee would be able to defer payment of the amount so long as it has not been received by the employee. As stated in the response to question 13 of the Revenue Canada Round Table published in the 1984 Conference Report:

"The Department considers an amount to have been received by an employee upon the earlier of the date upon which payment is made and the date upon which the employee has constructively received a payment. Constructive receipt is considered to occur in situations where an amount is credited to an employee's debt or account, set apart for the employee, or otherwise available to the employee without being subject to any restriction concerning its use. The position is the same following termination of employment, retirement, or death. An election to receive payment in instalments must be made before the amounts become available to the employee."

It is our opinion that the principle recounted above would be the same with regards to SDA's. Thereby granting the employee an election to defer payment of a bonus would not affect the exemption provision described above provided the election was made prior to actually or constructively receiving the amount.

We trust these comments will be of assistance.

Yours truly,

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