CRA ruled on a supplemental employee retirement plan ("SERP") to provide benefits to senior employees based on the portion of their base salary (up to a cap) in excess of their maximum pensionable earnings for purposes of the company defined benefit registered pension plan (RPP). Each month, 1/12 of this eligible portion of their base salary would be credited to a notional account and, at year end, the notional balance would be adjusted for a notional positive or negative return based on that achieved for the year under the RPP. Upon retirement, a participant could elect to receive their notional account balance as a single lump sum payment, or in annual instalments over a period not exceeding 10 years, with the funding in either case to come only out of the employer’s general revenues.
CRA ruled that the SERP will not be a salary deferral arrangement (SDA) or retirement compensation arrangement, and that the only income inclusions to the participants would be pursuant to s. 56(1)(a)(i) of the payments to them.