2000 Ruling 1999-0008543 - DSLP

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:

Does plan meet 6801(a) [deferred salary leave plan] requirements?

Position:

Yes.

Reasons:

General review

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX 1999-000854 (992667)
XXXXXXXXXX

Attention: XXXXXXXXXX
XXXXXXXXXX

XXXXXXXXXX
XXXXXXXXXX

XXXXXXXXXX, 2000

Dear Sir and Madam

Re: Deferred Salary Leave Plan for Employees of
XXXXXXXXXX (the "Plan")

This is in reply to the your letters of XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the above noted Plan. We also refer to your facsimile of XXXXXXXXXX, and our telephone conversation of XXXXXXXXXX in which you confirmed the Plan will reflect the following information at the time it is implemented.

Definitions and Abbreviations

In this letter, the following terms have the meanings specified:

(a) "Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as amended to the date hereof;

(b) "Agreement" means: XXXXXXXXXX;

(c) "Association" means: XXXXXXXXXX;

(d) "Committee" means: the DSLP Committee, which is representing, for the purposes of the development and implementation of the Plan, the teachers employed by the Employer;

(e) "Employee" means: a teacher employed by the Employer;

(f) "Employer" means: XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX Tax Services Office
XXXXXXXXXX Tax Centre;

(g) "School Year" means: the school year or academic year beginning on July 1 of any particular calendar year;

(h) "Representative" means: XXXXXXXXXX; and

(i) "Regulations" means: the Income Tax Regulations.

Facts

1. The Employer and the Association have prepared a policy statement to establish the Plan with effect subsequent to the date of this letter and to place the Plan in the Agreement.

Proposed Plan

2. The Employer and the Association propose to establish the Plan as detailed in the Employer's policy statement dated XXXXXXXXXX and the appendices and attachments to the policy as submitted, with such amendments as are required to obtain this ruling. The principal features of the Plan, as so amended, are as follows:

(a) The Plan shall be maintained as a prescribed plan or arrangement as defined in paragraph 6801(a) of Regulations and not a salary deferral arrangement as that term is defined in subsection 248(1) of the Act.

(b) Changes to the Plan and Appendices "B" and "C" shall not be allowed once they comply with the Regulations and there shall be no deviations that will result in the Regulations being violated.

(c) Certain terms defined in the Plan are as follows:

"Current Compensation Amount" means the total compensation payable by the Employer to a Participant for the current School Year in accordance with the current collective agreement in force between the Employer and the Representative which may be applicable from time to time;

"Deferred Compensation Amount" means the aggregate of each portion of the Current Compensation Amount which is retained by the Employer for the account of a Participant in each calendar year in accordance with (g) below, and augmented from time to time by interest thereon but less all amounts paid under the terms of the Plan;

"Deferred Period" means the number of years for which compensation is deferred in accordance with (g) below including the periods referred to in (n) below if applicable but not exceeding 6 years after the date on which the deferrals commence;

"Eligible Employee" means a full or part-time Employee employed by the Employer for a minimum of three consecutive years;

"Leave of Absence" means a twelve month period taken in accordance with the provisions of the Plan that will commence at the beginning of the School Year and immediately after the deferred period; and

"Participant" means an Eligible Employee who has completed a "Memorandum of Agreement" (Appendix C of your submission) and whose application for participation has been approved by the Employer.

(d) An Eligible Employee who desires to be a participant in a Leave of Absence under the Plan shall make application to the Employer on or before April 1 of the calendar year in which the Deferred Period is to commence.

(e) The Employer shall on or before May 1 of the same calendar year, advise the Employee whether or not the application to be a participant in the Plan has been approved.

(f) The Memorandum of Agreement (see definition of "Participant" in (c) above) shall be signed by the Participant and the Employer prior to commencement of the Deferred Period.

(g) During each School Year prior to the Leave of Absence, a Participant, for a maximum of (XXXXXXXXXX) School Years will receive his/her current compensation amount, less XXXXXXXXXX% as specified in the Memorandum of Agreement. The sums so retained shall be invested by the Employer in an interest-bearing account at the Employer's banking institution in trust for the Participant.

(h) While participating in the Plan, the amount of the Current Compensation Amount deferred in any calendar year by a Participant under the Plan and any other such arrangement for services rendered by the Participant to the Employer cannot exceed 33 1/3% of the Participant's Current Compensation Amount for the year.

(i) Interest shall be credited to the Participant on his Deferred Compensation and the interest earnings, less any administrative costs shall be reported as income by the Participant as provided in (x) below.

(j) The Leave of Absence shall occur according to and be governed by the Memorandum of Agreement referred to in (f) above as executed by a Participant and the Employer.

(k) Under no circumstances shall a Deferred Period in excess of six years be allowed.

(l) The manner of payment to a Participant shall be in relatively equal monthly installments at or near the end of each month following the commencement of the Leave of Absence from the monies and accrued interest held by the Employer on behalf of a Participant.

(m) The amounts to be paid to a Participant during the Leave of Absence shall be related to the monies retained by the Employer in accordance with (g) above but less any amounts previously paid to the Participant in accordance with (x) below, any lawful deductions required to be paid by the Employer for or on behalf of the Participant, and less any administrative fees to which the Employer may be entitled.

(n) Not less than (6) six months prior to the scheduled commencement of the Leave of Absence, a Participant may request that the Employer consent to defer or delay the leave for a period of not more than one year provided that the entire period, starting from the beginning of the Deferred Period and ending with the completion of the Leave of Absence shall not exceed a period of (6) consecutive years.

o) A Participant's Leave of Absence shall commence immediately following the Participant's Deferred Period.

(p) During the Leave of Absence, a Participant will not accumulate nor be entitled to the following:

a) teaching experience for salary increments
b) statutory holidays, maternity, parenting, sick or other leaves or promotions
c) seniority credits, although existing seniority shall remain intact
d) employment insurance coverage

(q) The Employer will make Canada Pension Plan deductions from payments to a Participant in accordance with legal requirements.

(r) A Participant who ceases to be employed by the Employer must withdraw from the Plan. Within (60) sixty days, the Employer shall pay to the Participant the Deferred Compensation Amount held for the credit of the Participant.

(s) In extenuating circumstances such as financial hardship, and with the consent of the Employer, a Participant may withdraw from the plan upon giving not less than (6) six months notice of intent to do so prior to the date established for the Leave of Absence. Within (60) sixty days of such withdrawal the Employer shall pay to the Participant the Deferred Compensation Amount.

(t) Should a Participant die, the Employer shall within (60) sixty days of notification of such death to the Employer, pay the Deferred Compensation Amount to the Participants' estate, subject to the Employer receiving the necessary clearance and proofs normally required for payment to estates.

(u) Following a Leave of Absence, a Participant must resume employment with the Employer or with an employer that participates in the same or a similar arrangement for a period of time not less than the duration of the Leave of Absence.

(v) The Employer shall deduct from the Deferred Compensation Amount reasonable costs incurred by it in the administration of the Plan.

(w) No amendment shall be made to the Plan which will prejudice any tax ruling which is applicable to the plan prior to the amendment.

(x) Any interest or other additional amounts that may reasonably be considered to have accrued to or for the benefit of a Participant to the end of a taxation year (calendar year) shall be paid in that year to the Participant. Amounts paid to the Participant will be considered to be employment income for the purposes of Act and will be reported on the Participant's form T-4 Supplementary and shall be subject to withholdings for income tax, Canada Pension Plan contributions and Employment Insurance Act premiums.

(y) During the Leave of Absence, the Employer may not hire the Participant for any purpose whatsoever and the Participant shall agree not to be hired for any purpose whatsoever by the Employer. Throughout the Leave of Absence, the Participant will not receive any salary or wages from the Employer or from any other person or partnership with whom the Employer does not deal at arms length other than:

(A) the amount by which the Employee's salary or wages under the arrangement was deferred, and

(B) any reasonable fringe benefits that the Employer usually pays to or on behalf of Employees,

Purpose of the Proposed Plan

3. The proposed Plan is to allow Eligible Employees to fund Leaves of Absences through the deferral of compensation from their employment.

Additional Information

4. To the best of the knowledge of the Employer, Committee and Association, (the "Parties") none of the issues related to this request:

(a) have previously been reported in any return of the Parties, or any related person's prior income tax returns;

(b) are being considered by a tax services office in connection with any of the Parties' or a related person's prior income tax returns;

(c) are under objection by any of the Parties or a related person;

(d) are before the courts; and

(e) are the subject of a ruling previously issued by this directorate.

Rulings

Provided the above statement of facts and description of the proposed Plan are accurate and constitute a complete disclosure of all relevant facts and terms of the proposed Plan, and provided the Plan is implemented as described, we rule as follows:

A. The Plan will satisfy the requirements set out in paragraph 6801(a) of the Regulations and will therefore be excluded from the definition of a "salary deferral arrangement" as that term is defined in subsection 248(1) of the Act.

This ruling is given subject to the general limitations and qualifications set forth in the Canada Customs and Revenue Agency's Information Circular 70-6R3 dated December 30, 1996, and is binding on the Agency provided the proposed Plan is implemented on or before XXXXXXXXXX.

Yours truly,

XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch