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 an employee on leave under a deferred salary leave plan decides to accept a buyout offer, how will the amounts deferred under the DSLP be taxed where the employee will not be returning to work in accordance with the DSLP?
Position: Deferred amounts taxed when conditions of the Plan ceased to be satisfied.
Reasons: Where the DSLP satisfied 6801(a) and subsequent events result in a condition of the DSLP not being satisfied, the deferred amounts will be taxed as income for the year in which the condition ceases to be satisfied.
XXXXXXXXXX 1999-001382
M. P. Sarazin
February 9, 2000
Dear Sir:
Re: Deferred Salary Leave Plan and Buyout Package
This is in response to your letter dated December 2, 1999, wherein you requested our comments regarding the taxation of deferred amounts held under a deferred salary leave plan (the "DSLP") described in 6801(a) of the Income Tax Regulations (the "Regulations") at a time when you have accepted a buyout package and you will not be able to return to work after the completion of your period of leave in accordance with the terms of the DSLP.
You are currently on leave from XXXXXXXXXX under a DSLP with your employer, theXXXXXXXXXX. Prior to XXXXXXXXXX, your employer offered and you accepted a buyout package resulting in you terminating your employment on XXXXXXXXXX. Consequently, you will not be returning to work as required under the terms of the Plan.
In your letter you have outlined what appears to be an actual fact situation related to completed transactions. We must advise you that the review of such transactions falls within the responsibility of tax services offices. However, we can provide you with the following general comments.
Where a DSLP meets the conditions in paragraph 6801(a) of the Income Tax Regulations (the "Regulations"), the amounts deferred under the DSLP will be exempt from being considered a salary deferral arrangement and will only be included in a participant's income as the amounts are eventually received under the terms of the plan. Where a condition in paragraph 6801(a) is no longer complied with, the participant would be considered to have terminated or withdrawn his or her participation in the plan. The conditions include a requirement that the employee agree to return to his or her regular employment for a period after the leave of absence at least equal to the period of leave. Where a participant in a DSLP elects to accept a buyout package offered by the employer and, as a result, the above-noted condition in paragraph 6801(a) of the Regulations will not be complied with, the participant will be considered to have withdrawn his or her participation in the plan and the deferred amounts plus any unpaid income earned thereon will become taxable at that time. Consequently, the total of the deferred amounts plus any income earned thereon held for you under the DSLP has to be included in your income for 1999.
We trust the above comments will be of assistance to you.
Yours truly,
Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy & Legislation Branch
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