26 January 1996 External T.I. 9600135 - SALARY DEFERRAL ARRANGEMENT

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:

Postponing the leave of absence to be taken by an employee past the six years prescribed by subparagraph 6801(a)(i) of the Regulations.

Position:

The deferral period can never exceed 6 years and where it is apparent that the terms to the plan can no longer be met, the arrangement is frustrated and all deferred funds must be paid out right away.

Reasons:

In accordance with subparagraph 6801(a)(i) & previous position taken.

P.S. Employment Adjustment Group
Human Resource Branch
Treasury Board Secretariat 		5-960013
5th Floor, West Tower		Franklyn S. Gillman
300 Laurier Avenue West
Ottawa, Ontario
K1A 0R5

Attention: Suzanne Cardinal

January 26, 1996

Dear Sirs:

Re: Paragraph 6801(a) of the Income Tax Regulations (the "Regulations")

This is in reply to your facsimile dated December 22, 1995 wherein you requested clarification as to the application of paragraph 6801(a) of the Regulations.

In order for a deferred salary leave plan to be in accordance with the Regulations it must provide that, in the event the employee does not take his/her leave of absence in the designated period, the deferred amounts will be paid to the employee in the first taxation year that commences after the end of the deferral period.

Subparagraph 6801(a)(i) of the Regulations provides that a leave of absence must commence immediately after the deferral period and that the deferral period must not exceed 6 years from the date on which the deferrals are commenced. In our view, under no circumstance will a deferral period in excess of 6 years be allowed. Therefore, if a deferral period commenced on January 1, 1991, the pay out period must commence no later than January 1, 1997. Should any postponement cause the leave of absence to commence at a later time, the provisions of subparagraph 6801(a)(vi) of the Regulations will have application and all amounts held under the arrangement will have to be paid to the employee no later that the end of the first taxation year that commences after the end of the six (6) year deferral.

However, when it is apparent that the terms of the arrangement can not be satisfied, the agreement is in default, no more funds may be deferred and any funds deferred up to that time must be paid out within a reasonable period of time. In the situation presented to us in your above mentioned correspondence, it is apparent that both the employee and the employer realize that the contemplated leave can no longer occur and still qualify for the purposes of satisfying paragraph 6801(a) of the Regulations. Accordingly it is our opinion that the arrangement is now frustrated and the funds must be paid out forthwith.

These opinions are our best interpretation of the law as it applies generally. They may, however, not always be appropriate in the circumstances of a particular case. As stated in paragraph 21 of Information Circular 70-6R2 written opinions are not advance rulings and, accordingly, are not binding on the Department.

We trust these comments will be of assistance.

Yours truly,

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