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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Whether or not overtime that is banked in lieu of time off with pay is taxable in the taxation year earned.
Position: Generally it is taxable when received, however, the salary deferral rules may apply to include the amount in income in the taxation year in which it is earned.
Reasons: See below.
XXXXXXXXXX Randy Hewlett, B.Comm.
2002-017174
December 6, 2002
Dear XXXXXXXXXX:
Re: Technical Interpretation Request - Vacation Overtime
We are writing in response to your letter of October 30, 2002, wherein you requested a technical interpretation on the above-noted issue.
In your letter, you outline XXXXXXXXXX (the "article"), which deals with vacation overtime. Summarized below are the relevant details from the article:
? A vacation overtime day is defined as a normal working day off with pay in lieu of overtime pay.
? At the employee's option, payment for overtime earned in a two-week pay period can be waived and a credit of equivalent hours will be made to a vacation overtime bank.
? Vacation overtime must be scheduled as time off within four weeks of the end of the pay period in which it was earned, but only upon mutual agreement between the employee and supervisor. If a mutual agreement cannot be reached, the employee will receive the pay.
? At the employee's option, the vacation overtime bank may be paid off in cash.
? The employee can request that the employer defer any overtime payment until a later time, but only to a time within the calendar year in which it was earned.
You inquire whether or not the article contravenes the Income Tax Act (the "Act"). You are concerned because there have been situations in which vacation overtime earned in one calendar year has not be taken as time off or paid out in cash, until the next calendar year. It is your understanding that only amounts received in the calendar year are included in employment income.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office (TSO). However, we are prepared to provide the following comments.
In general terms, an individual's salary, wages and other remuneration from an office or employment is subject to income tax in the taxation year payment is received. However, there are specific provisions of the Act that will include an amount in employment income in the taxation year it is earned, rather than when it may be received. For example, where at the end of a taxation year an individual has a right to receive a deferred amount under a "salary deferral arrangement" (SDA), as defined in subsection 248(1) of the Act, subsection 6(11) deems the deferred amount to have been received as a taxable employment benefit in that year for the purpose of paragraph 6(1)(a). A SDA includes a plan or arrangement where it is reasonable to consider that one of the main purposes for the creation of the right to receive an amount thereunder, was to postpone the payment of income tax.
Determining the purpose for the creation of the arrangement described in your letter will be a question of fact. Such a determination will involve a review of all relevant information, including establishing the participants' intent in setting up the arrangement. If you need further assistance, please contact your local TSO.
We trust our comments will be of assistance to you.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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