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: Where an employee participates in a 6801(a) deferred salary leave plan and decides to retire after taking his or her leave of absence, will the deferred amounts be included in income at the end of the leave period?
Position: No.
Reasons: The deferred amounts have to be included in the taxpayer's income as of the date that it is known that the taxpayer will not satisfy the condition to return to work under the DSLP.
XXXXXXXXXX 2000-002746
M. P. Sarazin
Attention: XXXXXXXXXX
August 25, 2000
Dear Sirs:
Re: Deferred Salary Leave Plan and Retirement
This is in reply to your letter of May 11, 2000, requesting our comments regarding the taxation of amounts deferred under a deferred salary leave plan ("DSLP") where the participant decides to retire prior to fulfilling his or her obligations under the DSLP.
You would like us to comment on two situations 1) where a participant knows that he or she will not be returning to work after the leave of absence prior to taking the leave and 2) where the participant does not know that he or she will not be returning to work after the leave of absence prior to taking the leave. In each case the participant enters into the DSLP with the intention of meeting all of his or her obligations but subsequent circumstances change to cause the participant to retire from his or her employment. You make reference to our technical interpretation of June 23, 1993 (E9313385).
Confirmation of the tax consequences associated with completed transactions are provided by the relevant tax services office. Opinions concerning proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. For more information concerning advance tax rulings, please refer to Information Circular 70-6R3 dated December 30, 1996, issued by the Canada Customs and Revenue Agency. Copies of information circulars and interpretation bulletins are available from your local tax services office or on the Internet at the following site - http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. However, we can provide you with the following general comments.
Where a DSLP meets the conditions in paragraph 6801(a) of the Income Tax Regulations (the "Regulations"), the amounts deferred under the DSLP will be exempt from being considered a salary deferral arrangement and will only be included in a participant's income as the amounts are eventually received under the terms of the plan. Where a condition in paragraph 6801(a) is no longer complied with, the participant would be considered to have terminated or withdrawn his or her participation in the plan. The conditions include the requirement that the participant agree to return to his or her regular employment for a period after the leave of absence at least equal to the period of leave.
The determination of when a particular condition described in paragraph 6801(a) of the Regulations will no longer be complied with is a question of fact. When it is known that a condition will no longer be complied with, the deferred amounts (including any unpaid interest) will have to be paid to the participant and taxed at that time. Consequently, at the time that a participant knows he or she will not be returning to his or her regular employment, the deferred amounts and any unpaid interest are required to be paid out of the DSLP to the participant and are taxable as employment income in that year. This would be the case whether the decision not to return to his or her regular employment is made before or during the leave of absence.
For your future reference, please note more current interpretations on point include our letters of February 9, 2000 (E1999-001382) and August 18, 1998 (E9816405).
We trust these comments will be of assistance to you.
Yours truly,
Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate
c.c. : Susan McGee
Calgary Tax Services Office
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