2 January 2001 External T.I. 2000-0058055 - DSLP, REVIEW PLAN

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 2000-005805
M. P. Sarazin
Attention: XXXXXXXXXX

January 2, 2001

Dear Sirs:

Re: Deferred Salary Leave Plan

This is in reply to your facsimile of November 23, 2000, requesting our comments on whether your proposed deferred salary leave plan ("DSLP") to be offered to the employees of the XXXXXXXXXX complies with the provisions of paragraph 6801(a) of the Income Tax Regulations (the "Regulations").

Comments

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. The Application section of the DSLP states that the salary deferral period may not exceed six consecutive years. We suggest that the Timing of Leave section of the DSLP state that the leave period must commence no later than six years after the commencement of the deferral period. (ATR-39, 3.1, 3.4 and 3.5)

2. In order to comply with paragraph 6801(a) of the Regulations, the DSLP must provide that throughout the period of the leave of absence the participant does not receive any salary or wages from the employer, or from any other person or partnership with whom the employer does not deal at arm's length, other than the deferred amounts and any reasonable fringe benefits. In our view, the current provisions of the DSLP should be amended to make this very clear to the participants. (ATR-39, 3.3)

3. In order to comply with paragraph 6801(a) of the Regulations, the DSLP must provide that the income earned in a calendar year in respect of the deferred salary held by the financial institution on the participant's behalf has to be paid to the participant as employment income in the calendar year that the income is earned. The current provisions of the DSLP should be amended to provide for these payments. (ATR-39, 2.3)

4. The Disbursement Options section of the DSLP states that participants will be able to arrange any payment schedule with the financial institution during the leave period. The current provisions of the DSLP should be amended to provide that the deferred amounts will be paid out no later than the end of the first taxation year that commences after the end of the deferral period. (ATR-39, 3.2)

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.

We trust the above comments will be of assistance to you.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate

ENCLOSURE