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:
1. Must a person return to employment after a leave of absence is taken under a DSLP?
2. Can a leave of absence be taken part way through a deferral period?
Position:.
1. Yes.
2. No.
Reasons:.
1. The Regulations require a person to return to employment after the leave.
2. The Regulations require the leave of absence to follow immediately after a deferral period.
XXXXXXXXXX 1999-000791
W. C. Harding
January 25, 2000
Dear XXXXXXXXXX:
Re: "Four over Five" Deferred Salary Leave Plan ("DSLP")
This is in reply to your letter of August 12, 1999, addressed to the Toronto North Tax Services Office of the Canada Customs and Revenue Agency (formerly "Revenue Canada") which was referred to us for reply.
In your letter you asked if it is still a requirement under a DSLP for an employee to return to work after a leave of absence and whether a participant in a plan would be able to retire before returning to work after a leave of absence.
Where a DSLP meets the conditions in paragraph 6801(a) of the Income Tax Regulations (the "Regulations"), the arrangement will not be a "salary deferral arrangement" as that term is defined in Income Tax Act (the "Act"), and any amounts deferred under the plan will not be included in a participant's income until they are received under the terms of the plan. One of the requirements of the Regulations is that a DSLP must include a requirement for a participant to return to his or her regular employment with the employer or with an employer that participates in the same or a similar arrangement after the leave of absence for a period that is not less than the period of the leave of absence.
Where a condition in paragraph 6801(a) such as the above will not be complied with, a participant will be considered to have terminated his or her participation in the plan. For example, this would occur where a participant decides not to return to work after a leave of absence or does not agree to return for a period equal to the leave of absence. However, the determination of when an individual's participation in a DSLP would be considered to terminate for purposes of the Act would require a review of all of the facts relating to each particular case. If it is determined that it was known, at the time an agreement was entered into that the participant would not be returning to work, then the DSLP would not have met the conditions of paragraph 6801(a) of the Regulations at any time and the participant could be reassessed to have deferred amounts included in his or her income in the years that amounts were deferred. If it is determined that the decision not to return was made at a later date, we take the view that the agreement would be terminated from that point in time and the participant could be reassessed to have the deferred amounts included in his or her income for that year.
We also noted in the information you provided with your letter that it appears you have an agreement with your employer that will permit you to take a leave of absence under a DSLP which will be followed by a year in which you will defer part of your salary. You should be aware that such an agreement will not conform with the provisions of the Regulations. In particular subparagraph 6801(a)(i) of the Regulations provides that a leave of absence must commence immediately after a period (referred to as the "deferral period") not exceeding 6 years after the date on which the deferrals for the leave of absence commence. In other words it is not possible to have an agreement that permits the leave period to occur before all deferrals under the plan are completed.
We trust these comments will be of assistance to you.
Yours truly,
P. Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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