10 November 1998 External T.I. 9828475 - DSLP, BEYOND 6 YEARS

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: Can a DSLP extend beyond the six year limit?

Position: No.

Reasons: 6801(a) clearly prohibits extension beyond this limit.

XXXXXXXXXX 982847
M. P. Sarazin
Attention: XXXXXXXXXX

November 10, 1998

Dear Sirs:

Re: Deferred Salary Leave Plan

This is in reply to your letter dated November 3, 1998, wherein you asked whether one of your employees could be exempted from having to start his or her leave of absence under a deferred salary leave plan ("DSLP") within six years of the commencement of the salary deferrals. The employee's salary deferral began in January, 1992 and, due to an administrative oversight, it has extended beyond the six year limit allowed under subparagraph 6801(a)(i) of the Income Tax Regulations (the "Regulations").

The administrative oversight was discovered in September 1998 and the employee will be reimbursed for the 1998 deferred salary amounts. The situation is further complicated by the fact that the employee's manager has approved a change in the leave dates to July 15, 1999 to July 14, 2000.

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.

Where a DSLP meets the conditions in paragraph 6801(a) of 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 at that time. The conditions include a requirement that the employee's leave period commence not more than six years after the commencement of the deferral of the employee's salary. Consequently, the employee's leave of absence had to commence by January, 1998 in order to comply with the conditions in paragraph 6801(a) of the Regulations.

Where a condition in paragraph 6801(a) of the Regulations is not 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 (i.e. in this situation in 1998). We note that there is no provision in the Income Tax Act or Regulations that will allow the Department to exempt the employee, on a compassionate or other basis, from including the deferred amounts in his or her income at that time. Since the employee will be considered to have withdrawn from the plan when a paragraph 6801(a) condition is not satisfied and the full amount of deferred salary would become taxable as of the withdrawal date, the employee could take his or her leave of absence from his or her employment, on an unfunded basis, at any time.

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