CRA indicates that seasonal workers cannot participate in a DSLP and that employee advances are taxable when advanced rather than earned

CRA was asked whether employees working 10 months a year, who are temporarily laid off during the summer but have already been granted an assignment for the next school year, can participate in a deferred salary leave plan (“DSLP”). CRA indicated that if, at the time of making the DSLP agreement, the parties expected the employee to be laid off in the summers, the plan would not qualify, whereas:

if, at the time the agreement is made with an employee, it is clear from all the facts of the situation that the employee will meet all the requirements of paragraph 6801(a), being temporarily out of work during the summer period should not...prevent the employee from participating in a DSLP.

Other points made included:

• Although Reg. 6801(a) refers to an “arrangement,” CRA expects to see an agreement describing the terms and how the deferred amounts will be held.
• A hybrid arrangement is permitted in which, during the employee’s leave, the employee first receives amounts whose recognition is deferred under the DSLP rules, and then receives advances of salary or wages which are to be earned after returning, with such amounts in both cases being included in the employee’s income under ss. 6(3) and 5(1).
• In this type of arrangement (or one where the employee only receives advances during the leave – in which case, it is not within the DSLP rules), the employee is entitled to a s. 8(1)(n) deduction as the advances are “repaid” (i.e., out of reduced pay cheques following the return to work).
• Although under the DSLP rules the employee cannot receive salary or wages during the leave, reasonable fringe benefits are permitted.
• The employee is required to return to work for at least the period of the leave - so that, for example, an employee who worked 20 hours per week before a six month leave, could not return to work for only three months at 40 hours per week.
• Upon death or retirement of the employee, the deferred DSLP amounts are immediately recognized.

Neal Armstrong. Summaries of 19 December 2016 External T.I. 2016-0643191E5 Tr under Reg. 6801(a), s. 5(1) and s. 8(1)(n).