4 March 1999 External T.I. 9823865 - SDA, DEFERRED SIGNING BONUS

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Can a signing bonus to be paid over several years constitute a salary deferral arrangement for purposes of the Act?

Position: Maybe.

Reasons: Depends upon whether or not it represents salary or wages of the taxpayer for services rendered in the year.

XXXXXXXXXX 982386
M. P. Sarazin
Attention: XXXXXXXXXX

March 4, 1999

Dear Sirs:

Re: Deferred Signing Bonus and Salary Deferral Arrangement (“SDA”)

This is in reply to your letter dated September 8, 1998, wherein you requested our views as to whether a deferred signing bonus would constitute a salary deferral arrangement within the meaning assigned by subsection 248(1) of the Income Tax Act (the “Act”).

Comments

It appears that the opinion you seek relates to specific proposed transactions and, therefore, we bring to your attention Information Circular 70-6R3 dated December 30, 1996, issued by Revenue Canada. Confirmation of tax consequences with respect to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. However, we can provide you with the following general comments.

An SDA is defined in subsection 248(1) of the Act to mean a plan or arrangement, whether funded or not, under which any person has a right in a taxation year to receive an amount after the year where it is reasonable to consider that one of the main purposes for the creation or existence of the right is to postpone tax payable under the Act by the taxpayer in respect of an amount that is, or is on account or in lieu of, salary or wages of the taxpayer for services rendered by the taxpayer in the year or a preceding taxation year (including such a right that is subject to one or more conditions unless there is substantial risk that any one of those conditions will not be satisfied).

In order to conclude that a salary deferral arrangement exists, all of the conditions would have to be satisfied. The key element in the definition that would be at issue is whether the amount is owing for services rendered and whether there are conditions relating to the right. Where the individual has earned the amount simply by agreeing to enter into the employment contract, the agreement would likely constitute a SDA since the services have been rendered even where additional conditions are imposed (unless there is substantial risk that one of these conditions will not be satisfied). Examples of such conditions are contained in the Department of Finance’s technical notes to the definition of SDA. The arrangement may not be an SDA where the individual has to render additional services in order to earn the amount as salary or wages.

We trust that the above comment will be of assistance to you.

Yours truly,

Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch