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) Can a DSLP provide for a leave of absence of only six months? 2) Can a leave of absence be taken anytime in the final year of an acceptable plan?
Position: 1) Yes. 2) Yes if it commences immediately after deferrals cease.
Reasons: Both are allowed under subparagraph 6801(a)(i) of the Regulations.
XXXXXXXXXX 2000-001737
M. P. Sarazin
Attention: XXXXXXXXXX
June 1, 2000
Dear Sirs:
Re: Deferred Salary Leave Plans
This is in response to your letter of March 22, 2000, wherein you asked certain questions regarding deferred salary leave plans.
Through previous negotiations with the XXXXXXXXXX (the "Association") are allowed to participate in three, four or five year deferred salary leave plans. Currently an employee is paid a fixed percentage of his or her salary in each year of the deferral period and receives the same percentage salary in the year of leave. For example, in a three year plan, the member is paid two-thirds of his or her salary for the first two years of the agreement and two-thirds of the salary is paid in the third year when the member is on leave for the year.
XXXXXXXXXX, the Association would like to know whether a six-month leave of absence would be permitted instead of a one-year leave of absence. Continuing with the example described above, a participant in the three year plan would be paid 5/6ths of his or her salary over a deferral period of two and a half years and receive 5/6ths of the salary during the six-month leave period. The six-month leave of absence would be taken in the third year of the plan.
You would like to know whether a six-month leave of absence is permitted and whether the leave of absence could be taken at any time in the final year of the particular plan under paragraph 6801(a) of the Income Tax Regulations (the "Regulations").
A salary deferral arrangement does not have to be approved by the Canada Customs and Revenue Agency (the "Agency") for it to comply with the provisions of paragraph 6801(a) of the Income Tax Regulations (the "Regulations"). However, a binding confirmation from the Agency that a proposed deferred salary leave plan ("DSLP") does meet these provisions can be obtained in the form of an advance income tax ruling, if you so desire, and a request for it is submitted in the manner set out in Information Circular 70-6R3 (available at your local tax services office or on the internet at www.ccra-adrc.gc.ca/formspubs/menu-e.html). The following are general comments which are not binding on the Agency.
In order to satisfy the conditions in subparagraph 6801(a)(i) of the Regulations, the terms of the written agreement must provide, that (i) it is reasonable to conclude that the arrangement is not established to provide benefits on or after retirement, (ii) the period of leave under the DSLP may not be less than three months in the case where the participant will attend, on a full-time basis, a designated educational institution, and six months in any other case and (iii) the period of leave is to commence immediately after a deferral period not exceeding six years after the date on which the deferrals commence. You will note that a six-month leave of absence is acceptable under paragraph 6801(a) of the Regulations. In addition, taking the leave of absence anytime in, using the example above, the third year for a three year plan is acceptable under paragraph 6801(a) of the Regulations if the leave commences immediately after the deferrals cease.
In any case, a plan or arrangement must be established and operated in a form that initially satisfies and continues to satisfy all of the conditions in paragraph 6801(a) of the Regulations.
We trust the above comments will be helpful.
Yours truly,
Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate
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