2020-0864831I7 found that full-value restricted share units (“RSUs”) granted early in the calendar taxation year of the employer (the “Grant Year”) were considered to be in respect of services in the previous year, so that such award came within the salary deferral arrangement (SDA) definition, and would not be excluded under para. (k) of the SDA definition if the RSUs were settled in the third year after the Grant Year, i.e., more than three years after the end of the year in which the services had been rendered. Further elaborating on the para. (k) exception, CRA stated:
As we had assumed in … 2020-0864831I7 that the hypothetical Canco’s fiscal year was a calendar year, we did not intend to change our longstanding position regarding deferred bonuses (such as full-value RSUs) payable by a corporate employer with an off-calendar fiscal year. Our view continues to be that such bonuses will be excluded from the SDA definition by virtue of paragraph (k) if the arrangement provides that the bonus will be paid before the end of the third calendar year following the calendar year containing the end of the corporate fiscal year in which the services were rendered. For example, if a deferred bonus is granted in respect of services rendered in a corporate fiscal year ending on November 30, 2021, it would have to be paid on or before December 31, 2024 in order to satisfy the paragraph (k) exception. This applies regardless of whether the grant is made in December 2021 or early in 2022.
Since the service period, the employer’s fiscal year-end date and the grant date are all important variables in ascertaining the application of the SDA rules, it cannot simply be assumed as a matter of fact that a grant of full-value RSUs that vest within three years from the end of the Grant Year will automatically fall within the paragraph (k) exception … .