29 April 1997 External T.I. 9709215 - CONST RECEIPT, ACCELERATED PAYMENTS

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:

Where a non-registered supplemental pension plan provides employees with the right to elect to receive the commuted value of future lifetime pension benefits in five equal annual instalments, will contructive receipt result when the election is made?

Position:

No

Reasons:

Other than accelerated pay-out, the employee has no additional rights to amounts under the contract that would result in constructive receipt.

		970921
XXXXXXXXXX	M.P. Sarazin

Attention: XXXXXXXXXX

April 29, 1997

Dear Sirs:

Re: Supplemental Retirement Benefits

This is in reply to your letter dated April 3, 1997, wherein you requested our comments as to whether constructive receipt would exist in the situation where an employer provides an unfunded supplemental pension plan (the "Plan") and, under the terms of the Plan, an individual may elect, prior to retirement, to receive the commuted value of his or her supplemental lifetime retirement benefits in equal annual instalments over a period of five years.

Comments

It appears that the interpretation you seek relates to proposed transactions to be undertaken by specific taxpayers and, therefore, we bring to your attention Information Circular 70-6R3 dated December 29, 1996, issued by Revenue Canada, Customs, Excise and Taxation. 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. If you wish to obtain an advance income tax ruling with respect to specific transactions which are contemplated, a written request for an advance income tax ruling can be submitted in accordance with the Information Circular. Nevertheless, we can provide you with the following general comments.

In its response to Question 13 at the 1984 Revenue Canada Round Table published in the Report of the Thirty-Sixth Tax Conference, 1984, the Department stated that "constructive receipt is considered to occur in situations where an amount is credited to an employee's debt or account, set apart for the employee, or otherwise available to the employee without any restriction concerning its use". Where a contractual arrangement provides a taxpayer with rights to a stream of payments that would be taxed as received and, under the contractual arrangement, the taxpayer has the right to accelerate the stream of payments, we would not generally consider the exercising of the right to accelerate the stream of payments to constitute constructive receipt.

We trust the above comments will be of assistance to you.

Yours truly,

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