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:
Is a plan described in Regulation 6801(d) also an RCA if it is funded?
Position:
While there may be a few exceptions where one of the exempting paragraphs of the RCA definition also applies, in most cases a funded 6801(d) type of plan will be an RCA
Reasons:
The Department has a general position that phantom stock plans are SDAs. Regulation 6801(d) was designed to carve certain phantom stock plans from the SDA rules where they were designed to provided post retirement benefits. However, such plans if funded would generally meet the RCA definition unless they are also carved out of that definition.
XXXXXXXXXX 971837
Attention: XXXXXXXXXX
August 5, 1997
Dear Sirs:
Re: Funded Whole Unit Phantom Stock Plan
This is in reply to your letter of June 27, 1997, in respect of the above-noted topic.
The situation described in your letter appears to be a factual situation. Written confirmations of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3, dated December 30, 1996. Accordingly, we can not specifically address the situation detailed in your letter. However we can provide the following general comments which may be of assistance to you.
An arrangement is a salary deferral arrangement (an "SDA") if it is described in the preamble of the definition of an SDA in Subsection 248(1) of the Income Tax Act (the "Act") and is not excluded by one of the paragraphs (a) through (l) of the definition.
Paragraph (l) of the definition excludes a plan or arrangement prescribed under paragraph 6801(d) of the Income Tax Regulations (the "Regulations"). In essence, the Regulation excludes arrangements commonly referred to as phantom stock plans, provided they meet the conditions described therein.
A plan that is excluded from being an SDA by paragraph (l) may be funded or unfunded. However, where such an arrangement is funded, it may also be an employee benefit plan (an "EBP") or a retirement compensation arrangement (an "RCA") as these terms are defined in subsection 248(1) of the Act. An arrangement can not be both an EBP and an RCA.
In our opinion, an arrangement described in regulation 6801(d) will generally be an RCA if it is funded and it otherwise meets the conditions of the preamble of the RCA definition and it is not excluded from being an RCA by one of the paragraphs (a) to (n) of the definition. The preamble provides, in part, that an RCA is a plan under which contributions are made to a custodian by an employer in connection with benefits that are to be received by any person on or after the retirement of an employee. In our opinion this wording is broad enough to include benefits that may be provided under the terms of a plan described under paragraph 6801(d) of the Regulations. Furthermore it is our view that this position is consistent with the intent of the Act as it applies to the funding of post-retirement employment benefits.
We trust these comments will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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