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 their proposed deferred salary leave plan satisfy the conditions described in paragraph 6801(a) of the Regulations?
Position: No.
Reasons: Certain conditions in paragraph 6801(a) are not satisfied.
XXXXXXXXXX 2000-004244
M. P. Sarazin
Attention: XXXXXXXXXX
October 24, 2000
Dear Sirs:
Re: Deferred Salary Leave Plan
This is in reply to your letter of August 3, 2000, requesting our comments on whether your proposed deferred salary leave plan ("DSLP") to be offered to your XXXXXXXXXX employee group complies with the provisions of paragraph 6801(a) of the Income Tax Regulations (the "Regulations").
Please note that it is not necessary to obtain an advance income tax ruling or other form of approval from the Canada Customs and Revenue Agency (the "Agency") in order to implement a deferred salary leave plan under which the amount of income tax to be deducted is computed on the actual salary received. You may satisfy yourself that the plan complies with the requirements of the Income Tax Act and the Regulations. Note that the following comments do not constitute a ruling which binds the Agency.
Our review of the provisions of the DSLP indicates that there are some deficiencies which should be amended to ensure that the DSLP complies with the Regulations. We suggest that you consider our comments and that you refer to the enclosed copy of Income Tax Ruling ATR-39 (references to sample wording in ATR-39 follow each comment if available).
1. Based on the terms of the DSLP, it must be reasonable to conclude that the arrangement is not established to provide benefits to the employee on or after retirement but is established for the main purpose of permitting the employee to fund a leave of absence. The terms of the plan should state very clearly that the plan is not intended to provide benefits to an employee on or after his or her retirement.
2. In XXXXXXXXXX of the DSLP, the participant has various payment options which are available in respect of the deferred amounts. Each of the payment options satisfy the requirements of subparagraph 6801(a)(vi) of the Regulations. However, XXXXXXXXXX allows for any payment arrangement that is mutually agreed to by the employee and the employer. We recommend that you amend XXXXXXXXXX to make it subject to XXXXXXXXXX so that all of the deferred amounts are paid (as required by the above-noted provision) out no later than the end of the first taxation year that commences after the end of the deferral period.
3. In XXXXXXXXXX of the DSLP, the receipt of deferred amounts can be postponed where the leave of absence is deferred for a year. During the postponement period, an employee is entitled to receive his or her normal salary. In order to comply with subparagraph 6801(a)(i) of the Regulations, the DSLP must provide that the leave of absence commence immediately after the deferral period. Consequently, the DSLP will not satisfy paragraph 6801(a) of the Regulations. We also note that the DSLP must provide that the deferral period not exceed 6 years after the date on which the deferrals for the leave of absence commence. This should be clearly stated in the terms of the DSLP. (ATR-39, 3.1 and 3.6)
4. InXXXXXXXXXX of the DSLP, the termination of a participant's employment or the death of the participant will result in the payment of the deferred amounts held on the participant's behalf. The DSLP does not state when the amounts will be paid out by the employer. We recommend that the terms of the DSLP provide for a limited period time to pay out the deferred amounts in those cases. (ATR-39, 4.1, 4.2 and 4.3)
We note that all of these conditions have to be satisfied within the terms of the DSLP before the plan or arrangement will qualify as a deferred salary leave plan for purposes of paragraph 6801(a) of the Regulations. Should you still wish to obtain an advance income tax ruling, please refer to the enclosed Information Circular 70-6R3 (Advance Income Tax Rulings) and submit your request in the form described therein. Please note that the fee for an advance income tax ruling was increased on August 1, 2000, to $100 for each of the first 10 hours and $155 for each additional hour. An advance of the fee for the first five hours plus GST in the amount of $535 must accompany your request.
We trust the above comments will be of assistance to you.
Yours truly,
Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate
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