November 21, 1991
Registered Plans Division Business and General
Ms. Stella M. Kotlar, Director Division
Marc Vanasse
Attention: Dianne Waterfield (613) 952-0243
Room 4052A CP 913088
24(1)This is in reply to your memorandum dated November 7, 1991 wherein you requested an opinion as to whether amounts contributed to the above-mentioned pension plan (the "Plan") from a flexible dollar allowance account under a flexible benefits plan qualify as employer contributions.
More specifically, at issue is whether the Department will consider as employer contribions any reduction in a member's gross salary that is credited to the member's flexible dollar allowance account for purposes of making current service contributions to the Plan.
As stated in a letter to your division dated October 25, 1991 by the taxpayer's representative, it is their opinion that contributions to the flexible dollar allowance account should be considered as employer contributions since Revenue Canada had taken an administrative position that foregone compensation in exchange for higher pension contributions to fund current service costs (as opposed to past service costs) represent employer contributions to the Plan.
At the present time, the only benefit currently available under the flexible benefits plan is the Plan. Eventually, as stated by the representative, other benefit option will be added to the flexible benefits plan.
Our Comments
The Department has taken the position that where an employee foregoes salary or wages and elects to take an equivalent credit in his or her flexible dollar allowance account under a flexible benefits plan, the forgone salary or wages will be taxable to the employee pursuant to subsection 5(1) of the Income Tax Act at the time of credit to the account and will constitute employee contributions to the flexible dollar allowance account. In our view, the Department's administrative position of considering a reduction in a members remuneration for purposes of making pension contributions for current services as employer contributions is not intended to apply to pension contributions resulting from such a reduction made through a flexible benefits plan.
B.W. Dath Director Business and General Division Rulings Directorate
cc. Mr. W. Douglas. Chief, Deferred Income Plans, Rulings Directorate.
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