Principal Issues: The CRA is changing its administrative policy that allows an employee to redirect a portion of his or her bonus to obtain additional flex credits in a health care spending account on a tax free basis.
Position: On or after January 1, 2013, any bonus to which an employee is or will become entitled will be included in income in the year in which the amount is converted to flex credits.
Reasons: The allocation of a bonus to obtain additional flex credits in a HCSA is an allocation of forgone cash remuneration and should be subject to tax.
XXXXXXXXXX 2011-039775
XXXXXXXXXX , 2012
Dear XXXXXXXXXX :
Re: Revocation of Advance Income Tax Ruling 2006-020888 -
XXXXXXXXXX
This notice is further to our recent telephone discussion (XXXXXXXXXX ) and your letter of XXXXXXXXXX , written in response to our letter of XXXXXXXXXX wherein we notified you of our intention to revoke the above-noted Advance Income Tax Ruling (the "Ruling") dated XXXXXXXXXX .
As explained in our previous correspondence, the Ruling represented an extension of the administrative position in Interpretation Bulletin IT-529, Flexible Employee Benefit Plans, dated February 20, 1998, regarding flexible benefit plans and reflected the views of the Canada Revenue Agency ("CRA") at the time it was issued. On November 29, 2011 at the Canadian Tax Foundation's Annual General Meeting held in Montreal, QC, the CRA publically announced its change in position. Effective January 1, 2013, on a prospective basis, where an employee's annual bonus, to which he or she is, or will become entitled, is redirected to his or her health care spending account, the amount of remuneration forgone will be included in income from employment in the year in which the bonus is converted to flex credits.
If you have any questions, or if you require any further information in respect of this notice, please contact the undersigned at XXXXXXXXXX .
Yours truly,
XXXXXXXXXX .
Manager
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch