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 a DSLP fits 6801(a) and is therefore not an SDA
Position: Plan fits requirements of 6801(a)
Reasons: Law. Routine ruling.
XXXXXXXXXX 983316
Attention: XXXXXXXXXX
XXXXXXXXX, 1999
Dear Sirs:
Re: Advance Income Tax Ruling - Deferred Salary Leave Plan
This is in reply to your letter dated XXXXXXXXXX wherein you requested an advance income tax ruling in respect of a proposed deferred salary leave plan (the "Plan") for the employees of XXXXXXXXXX.
Our understanding of the facts and proposed transactions is as follows:
Relevant Facts and Proposed Transactions
For the purpose of the Plan the following words or phrases shall, unless the context clearly requires otherwise, have the meanings set forth below:
"Administrator" and "Employer" means XXXXXXXXXX.
"Basic Monthly Salary" means a Participating Employee's regular monthly salary including any retroactive pay adjustments, but does not include overtime or any other special payments.
"Benefit Entitlement Date" means a date upon which a Participating Employee is entitled to have Leave benefits commence.
"Deferral Period" means the period of time during which a portion of a Participating Employee's Basic Monthly Salary is being deferred under the terms of the Plan.
"Designated Representative" means a person designated in writing by the Employer as having the authority to approve an Employee's Leave.
"Employee" means any person who is retained in the employ of XXXXXXXXXX.
"Leave" means the period of time during which a Participating Employee will be or is receiving income benefits from the Plan which are as a result of his or her election to defer, but in no case shall the Leave be for less than six (6) consecutive months nor more than twelve (12) consecutive months.
"Participating Employee" means any Employee of the Employer who has satisfied the provisions of Article III of the Plan.
"Plan" means the Deferred Salary Leave Plan for Employees of XXXXXXXXXX.
Internal Planning and Priorities Executive Committee, hereinafter referred to as the "IPPE", is an all party committee responsible for the general operation of the "Deferred Salary Leave Plan" .
The Plan will be offered to employees of XXXXXXXXXX for the purpose of permitting the employees to fund, through salary deferrals, a leave of absence from employment of not less than 6 months that is to commence immediately after a period not exceeding 6 years after the date on which the deferrals for the leave of absence commence.
The Employer shall make contributions to the Plan upon the basis of an employee's election to defer the receipt of a portion of the employee's basic monthly salary (hereinafter referred to as the "election to defer"). The minimum amount which can be deferred is ten percent (10%) and the maximum is thirty three and one third percent (33 1/3 %).
Except in the first year of the Plan's operation, an employee shall make an election to defer prior to the beginning of the calendar year in which the Employer's contributions are to commence. Unless otherwise provided for in the Plan, Employer contributions to the Plan shall commence no earlier than the month of April and may not be changed prior to the following April.
The Employer's contribution to the Plan in respect of an employee shall be equal to the amount which the employee has elected to defer in respect of the deferral period.
During the first year of the Plan's operation, an employee's election to defer may take place in the same year as the Employer's contributions to commence, provided the employee makes the election to defer before the day on which the salary become payable.
In the event of an employee's death, contribution shall cease immediately and all previous contributions and unpaid accrued interest shall be refunded to his or her estate.
If an employee becomes totally and permanently disabled within the meaning of the Canada Pension Plan, contributions to the Plan for his benefit shall cease upon notification to the Employer of such disability. All previous contributions and unpaid accrued interest shall be refunded to the employee prior to January 31 of the calendar year following the year in which the disability commenced.
In the event that an employee becomes totally disabled within the meaning of XXXXXXXXXX Disability Income Plan, or if an employee takes an unpaid leave of absence or maternity leave from the Employer, any contributions to the Plan shall be suspended during the period of the employee's absence.
However, in these circumstances, an employee may, subject to the existence of continuing income, elect to defer income while absent from employment within the limits prescribed in the Plan, but in no event shall this extend the limitation imposed by the Plan.
When an employee terminates employment with the Employer, contributions being made to the Plan on his or her behalf shall cease and contributions previously made to the Plan and any unpaid accrued interest shall be refunded to the employee.
In the event that an employee does not take leave within the time frame prescribed in the Plan, all contributions made to the Plan for his or her benefit shall be refunded to the employee prior to January 15 of the following calendar year.
Contributions to the Plan shall be invested by the Administrator.
The Administrator shall establish separate accounting records for each employee in the Plan, by maintaining an account for each employee. Notwithstanding this, assets under the Plan shall not be held separately for each employee.
At the time that contributions are made to the Plan, the Administrator shall allocate such contributions to the employees' accounts, in accordance with the instructions of the Employer.
Prior to the end of each calendar year, the Plan shall pay to each employee an amount equal to the employee's proportionate share of the estimated investment earnings of the Plan for the year. For this purpose, any person in respect of whom contributions have been made to the Plan for a period of at least one (1) month during a calendar year shall be entitled to that person's proportionate share of the Plan's investment for the year.
When an employee takes leave, the employee's monthly income benefit shall equal the value of his or her account immediately prior to the Benefit Entitlement Date divided by the number of months for which leave has been approved.
Subject to the approval of the Designated Representative, an employee may change the scheduled leave dates at any time, but in no event shall the commencement of leave be extended to a period beyond (6) years from the date Employer contributions to the Plan commenced.
The Employer shall have the right to postpone an employee's leave for up to one (1) year, except that in no event shall such postponement delay the commencement of an employee's leave beyond six (6) years from the date Employer contributions to the Plan commenced. In addition, the Employer shall be required, when postponing an employee's leave, to provide the employee with a minimum of three (3) months written notice of such postponement.
The Employer, subject to specified conditions, retains the right to amend, modify or terminate the Plan in whole or in part at any time or from time to time and in such manner and to such extent as it may deem advisable.
In becoming a member of the Plan, an employee agrees to recommence employment with the Employer following the leave for a period of time at least equal to the period of leave.
If the employment of an employee is terminated and that person is thereafter reemployed, the person will for all purposes of the Plan, be considered to have first commenced employment with the Employer on the date of re-employment.
Once an employee becomes an employee in the Plan, partial withdrawal of funds therefrom shall not be permitted except when the employee can demonstrate extreme financial hardship to the IPPE Committee. The IPPE Committee shall have complete discretion in the approval or disapproval of such a request.
An employee may only withdraw from the Plan in extenuating circumstances such as extreme financial hardship. The IPPE Committee shall have complete discretion in the approval or disapproval of such a request.
To the best of your knowledge and the knowledge of the taxpayers involved, none of the issues under consideration in this request for an advance income tax ruling:
is in an earlier return filed by any of the taxpayers or a related person;
is being considered by a tax services office or taxation centre in connection with a previously filed return of any of the taxpayers or a related person;
is under objection by any of the taxpayers or a related person;
is before the courts in respect of any of the taxpayers or a related person; or is the subject of a ruling previously issued by the Income Tax Rulings and Interpretations Directorate to any of the taxpayers or a related person.
Ruling Given
Provided that the statement of facts and proposed transactions are correct and constitute a complete disclosure of all of the relevant facts and proposed transactions and that the terms of the Plan are as stated above (and are not amended or modified by the Employer), we rule that the Plan will be a prescribed plan or arrangement described in paragraph 6801(a) of the Income Tax Regulations and will therefore be excluded from the definition of a salary deferral arrangement under subsection 248(1) of the Income Tax Act.
The above ruling, which is based on the Act in its present form and does not take into account any proposed amendments thereto, is given subject to the general limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996, and is binding on Revenue Canada provided that the proposed Plan is implemented on or before XXXXXXXXXX.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
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