Revenue Canada Taxation
Head Office
XXX
B. Fioravanti (613)957-8962
April 13, 1988
Dear Sirs:
We apologize for the delay in replying to your letter of November 18, 1987 requesting our views as to the application of the salary deferral arrangement rules.
Before any determination can be made as to whether the incentive plan is or is not a "salary deferral arrangement" as defined by subsection 248(1) of the Income Tax Act (the "Act"), it is necessary to review all the terms and conditions of the specific plan. If the plan is in existence, as implied by your letter, then the review will be a function of the district taxation office. On the other hand, if it is a proposed plan not yet implemented, a request for an advance income tax ruling would be the proper procedure.
Generally speaking, it is our view that plans which provide for payments to employees based solely on the appreciation (if any) of the value of units (shares) awarded from the date of the award to the time of their redemption (share appreciation plan) will not be considered a "salary deferral arrangement" as defined in the Act.
On the other hand, where a plan provides that the employee will receive, in addition to any appreciation, the underlying value of the unit or phantom share (phantom stock plan) it is our view that the plan will generally be considered a salary deferral arrangement as defined in the Act.
We trust the foregoing will be of some assistance.
Yours truly,
for Director Financial Industries Division Rulings Directorate