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.
January 24, 2001
XXXXXXXXXX
Dear Colleague:
Thank you for your letter of October 30, 2000, on behalf of your constituent. XXXXXXXXXX, who is concerned about the effect his participation in a deferred salary leave plan (DSLP) may have on his plans for retirement.
The Income Tax Regulations set out the rules governing DSLPs and, in particular, require that these plans provide that the employee will return to work after the leave of absence for a period that is not less than the period of the leave of absence. The purpose of this is to ensure that a period of leave of absence from employment is followed by a return to work and not by a subsequent retirement. Consequently, if at the time the arrangement is made, the employee does not intend to return to work, any amounts deferred under the plan would be included in income in the years in which the deferrals occurred.
On the other band, where an arrangement meets the provisions of the Regulations at the time it is established, but, at some later time, either the employee or the employer does not abide by the provisions, then it may be appropriate to conclude that the arrangement has ceased to meet the requirements of the Regulations at that point in time. In this case, the amount held for the benefit of the employee must be included in the employee's income at that time and any deferrals made after that time must be included in the employee's income in the year in which the deferrals are made. Generally, the employer should terminate the arrangement and pay all remaining funds held for the benefit of the employee to him or her, less any applicable withholding tax.
In XXXXXXXXXX situation, it appears that his decision to retire was made only after he took the leave of absence and only because of his failing health. Furthermore, all of the amounts held under the arrangement for XXXXXXXXXX benefit would have been paid to him over the period of his leave of absence. Therefore, although XXXXXXXXXX decision to retire could result in the termination of the arrangement, there would not be any further tax consequences.
Please note that the information outlined above is of a confidential nature and is being provided to you in accordance with the Income Tax Regulations.
I trust that my comments will assist you in replying to XXXXXXXXXX.
Yours sincerely,
Martin Cauchon
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© Her Majesty the Queen in Right of Canada, 2001
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