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:
Whether plan meets the requirements of section 6801 of the Regulations?
Position TAKEN: No
Reasons FOR POSITION TAKEN:
All of the conditions in section 6801 of the Regulations have not been met.
950741
XXXXXXXXXX M.P. Sarazin
June 8, 1995
Dear Sirs:
Re: Deferred Salary Leave Plan ("DSLP")
This is in reply to your letter of March 14, 1995 in which you requested our comments on whether the proposed DSLP which will be included in a school board's collective agreement with its teaching staff complies with the provisions of paragraph 6801(a) of the Income Tax Regulations (the "Regulations").
A salary deferral arrangement does not have to be approved by the Department for it to comply with the provisions of paragraph 6801(a) of the Regulations. However, a confirmation that your DSLP does meet these provisions can be obtained in the form of an advance income tax ruling if you so desire and a request is submitted in the manner set out in Information Circular 70-6R2, a copy of which is enclosed.
Our review of the provisions of the DSLP indicates that there are some deficiencies which should be amended to ensure that the DSLP complies with the Regulations.
1. The DSLP should clearly indicate that it is not established to provide benefits to participants on or after retirement.
2. Clause XXXXXXXXXX allows a leave of six months where it runs consecutively with another leave in the teacher's collective agreement (the "Other Leave") such that the teacher would be absent for a period of one school year. If the Other Leave is taken immediately before the leave of absence under the DSLP (the "Plan Leave") subparagraph 6801(a)(i) will be offended because the Plan Leave will not commence immediately after the deferral period. However, if the Other Leave is taken immediately after the Plan Leave, subparagraph 6801(a)(v) will not be offended provided the teacher returns to his or her regular employment after the Other Leave for a period that is not less than the period of his or her Plan Leave. Consequently, the DSLP should state that any Other Leave taken by the teacher to make up the period of one school year must be taken after the Plan Leave.
3. Clause XXXXXXXXXX must provide that the amount of salary deferred by the teacher in any calendar year does not exceed 33 1/3% of the amount of salary that the teacher would, but for the arrangements, reasonably be expected to have received in the calendar year in respect of the services.
4. Clause XXXXXXXXXX of the DSLP should state that the amounts paid to the teacher would be subject to the usual withholdings and remittances.
5. Clause XXXXXXXXXX of the DSLP must provide that throughout the period of the Plan Leave, the teacher does not receive any salary or wages from the Board or from a person with whom the Board does not deal at arm's length other than the amount by which the teacher's salary under the DSLP was deferred or is to be reduced and reasonable fringe benefits.
6. The DSLP must provide that, in the event the teacher does not take his/her Plan Leave in the designated period, the deferred amounts will be paid to the teacher in the first taxation year that commences after the end of the deferral period.
The following comments reflect the Department's position concerning Unemployment Insurance premiums and Canada Pension Plan contributions. You may wish to include some or all of the following comments in the DSLP.
Unemployment Insurance
Unemployment Insurance premiums are to be based on the teacher's gross salary during the deferral period and no premiums are to be withheld from the deferred amounts when paid to the teacher during the leave period.
Canada Pension Plan ("CPP")
CPP contributions are to be based on the teacher's salary net of the deferred amounts during the period of deferral and on the deferred amounts when paid to the teacher during the leave period. When the deferred amounts are paid to the teacher by a trustee of the DSLP during the leave period, that trustee is deemed by the CPP Act to be an employer of the teacher and is therefore required to pay the employer's CPP contribution in respect of that teacher. Where the trustee/employer recovers the employer's CPP contribution from amounts otherwise payable to the teacher, it is our view that this recovered amount will not be part of the teacher's gross salary from that trustee/employer and therefore need not be included in the teacher's T4 slip.
Although the trustee is deemed under the CPP Act to be an employer, the teacher does not enter into a new employment with the trustee when he goes on leave. Consequently, while CPP contributions that are required to be paid during the leave period are to be deducted and remitted by the trustee as by any other employer, CPP paid in the year prior to the leave period must be taken into consideration by the trustee. For example, if the required CPP contributions for a year by an teacher were $700 and the teacher contributed $500 before going on leave, the trustee would be required to deduct and remit CPP contributions for that year of $200 on behalf of the teacher, plus the employer's portion.
The trustee will be required to prepare T4s reflecting the amount paid by the trustee to the teachers under the DSLP and, among other things, the CPP contributions. However, since CPP contributions made during the year prior to the leave period are to be taken into consideration by the trustee, the amount of contributory earnings reported by the trustee may not coincide with the earnings reported in box "C" for that particular year. If such is the case, the amount of contributory earnings must be reported in box "I" of the T4 which should in turn coincide with the amount of contributions reported in box "D". There may also be instances where the trustee will not have made any deductions for CPP because the teacher reached the maximum contributions prior to the leave period. If such is the case, a check mark should be indicated in box "J" of the T4 under CPP.
If further information is required concerning the trustee's responsibility with respect to CPP contributions or the preparation of T4s etc., the enquiry should be directed to Mr. Pierre M. Paquette at (613) 952-8179 or to the following address:
Coverage Policy and Legislation Branch
Source Deductions Division
Revenue Canada Taxation
875 Heron Road
Ottawa, Ontario
K1A 0L8
If the DSLP is amended as discussed above, it is our opinion that it will meet the requirements of paragraph 6801(a) of the Regulations. You are advised that this letter is not an advance income tax ruling but is merely a statement of opinion on the specifics of your proposed DSLP and it is not binding on the Department. We trust, however, that our comments will be of assistance.
For your information, we enclose the Department's publication ATR-39 which describes a deferred salary leave plan that complies with the requirements of paragraph 6801(a) of the Regulations.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Branch
Policy and Legislation Branch
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