Revenue Canada Taxation Head Office
April 11, 1988
XXX
W.C. Harding (613)957-3499
Dear Sirs:
Re: Unfunded Supplementary Retirement Compensation Your File XXXX
This is in reply to your letter of January 29, 1988 wherein you requested our opinion on the applicability of the "salary deferral arrangement" provisions of the Income Tax Act (the Act) to unfunded supplementary retirement compensation plans.
Whether or not any form of compensation arrangement falls within the definition of an employee benefit plan, an employee trust, a retirement compensation arrangement or a salary deferral arrangement may only be determined upon a factual basis when all of the factors relating to the arrangement are known. In the case of an unfunded supplementary retirement compensation arrangement we concur that, in general, it is not intended that such plans be included within the salary deferral arrangement definition. However, without exact details as to the basis for, or the method of, determining an employee's benefits under a plan, we could not say that it is not a salary deferral arrangement.
You have also suggested that, if benefits from a plan are contingent on survival of a former employee, there is a "substantial risk", as that term is used within the salary deferral arrangement provisions, that an amount will not be received under the plan. It is our view that the possibility of the death of an employee would not, in general, be considered to create a "substantial risk" as suggested. It will, however, remain a question of fact whether or not this general view would have application in respect of any specific plan and this, again, would only be determinable upon a detailed examination of the specific provisions of a plan.
Through your discussion of the interplay between subsections 6(1), 6(11) and 6(14) of the Act, it is our understanding that you are concerned that an unfunded retirement compensation plan which is not a salary deferral arrangement may create a right which would be included in income by virtue of the general application of paragraph 6(l)(a) of the Act.
In our view, a benefit, to be included within paragraph 6(1)(a), must be received by the employee or on his behalf and barring the application of a deeming provision such as subsection 6(11), we generally would not consider that a benefit has been received under an unfunded plan which provides only future rights.
The above opinions are our best understanding of the law as it applies generally. They do not, however, form an advance income tax ruling and they, therefore, are not binding upon the Department.
We trust that these comments are satisfactory to you.
Yours truly,
for Director Financial Industries Division Rulings Directorate