28 July 1998 External T.I. 9810865 - DSLP, DEFERRAL LESS THAN A YEAR

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: Could the deferral period under 6801 be less than a year?

Position: Yes

Reasons: Where less than 2 years we would have to look at the plan and why the period is so short. It may be to convert part-time employment to full-time for pension purposes.

XXXXXXXXXX 							981086
M. P. Sarazin

Attention: XXXXXXXXXX 

July 28, 1998

Dear Sir\Madam:

Re: Deferral Period for Deferred Salary Leave Plan

This is in reply to your letter dated April 24, 1998, wherein you requested our views as to whether a deferral period, within the meaning assigned by clause 6801(a)(i)(B) of the Income Tax Regulations (the “Regulations”), under a deferred salary leave plan could be less than a year (i.e. six months).

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 are able to provide you with the following general comments.

Under the provisions of subparagraph 6801(a)(i) of the Regulations, the deferral period is limited to six years after the commencement of the deferrals under the particular plan. We note that the provision does not provide for a minimum deferral period. Consequently, a plan could provide for a deferral period of any length of time that is less than six years.

Where the deferral period is less than two years, we would have to look at all of the details pertaining to the particular plan to determine whether it is established to fund a leave of absence or whether it is established to provide benefits on or after retirement. In our view, an argument could be made that the purpose of a plan established with a very short deferral period may be to convert full-time employment to part-time employment. If this is the case, the plan would not qualify as a deferred salary leave plan under paragraph 6801(a) of the Regulations.

Where the intent of a plan or arrangement is to provide an employee with pension benefits based on full-time employment even though the employee is only working part-time, we do not believe that the period the employee is absent from work, under such a plan, would qualify as an “eligible period of temporary absence”, within the meaning assigned by subsection 8500(1) of the Regulations. A deferred salary leave plan cannot be established to provide additional benefits to an employee on or after retirement. In this regard, you may want to discuss this issue with the Registered Plans Division of Revenue Canada.

We trust the above comments 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

c.c. John O’Meara

Registered Plans Division