CRA discusses the consequences of a sabbatical leave plan being offside the SDA rules

After finding that a sabbatical leave plan did not satisfy the requirements of Reg. 6801(a) as a deferred salary leave plan (for multiple reasons including the length and timing of the sabbatical leave and provision for notional employer contributions to match the salary amounts that the participating employees elected to defer), CRA went on to discuss the consequences of the leave plan being a salary deferral arrangement:

• The amount of salary that an employee deferred in a particular taxation year together with the amount of any matching notional employer contribution, would constitute a “deferred amount,” to be included in computing the employee’s income for that year pursuant to ss. 6(11) and 6(1)(a).
• The employer receives a s. 20(1)(oo) deduction for the same year as the s. 6(1)(a) inclusion.
• Amounts received by an employee during the sabbatical leave that were previously included in income as deferred amounts are (per s. 6(1)(i)) excluded from the employee’s income on such receipt.
• On the forfeiture of all notional employer contributions on the early termination of participation in the Plan, the amount of the employer contributions (previously included in the employees income) would be deductible by the employee pursuant to s. 8(1)(o). The employer, who would have previously taken a s. 20(1)(oo) deduction, would now have a s. 12(1)(n.2) inclusion. However, the lump-sum received by the employee on early termination would be excluded on receipt under s. 6(1)(i) given the previous inclusion under ss. 6(11) and 6(1)(a).

Neal Armstrong. Summaries of 23 April 2021 External T.I. 2020-0872371E5 under Reg. 6801(a) and s. 6(11).