27 February 2001 External T.I. 2001-0069475 - Deferred Salary Leave 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:

1. Will the fact that a teacher who is a member of a DSLP can now retire immediately after his leave of absence because of a reduction in the age and years of service requirements of his pension plan cause an immediate inclusion of all deferred amounts under the DSLP?

2. Will the diagnosis of a disease which could force the individual on to long term disability cause an immediate income inclusion of all deferred amounts under the DSLP?

Position: 1. No. 2. No.

Reasons:

The mere possibility that the individual may not return to work for a period of time equal to the time of the leave of absence is not enough to cause termination of the individual's participation in the DSLP and the income inclusion of all deferred amounts.

				2001-006947
XXXXXXXXXX 			G. Kauppinen
(613) 957-8971
February 27, 2001

Dear XXXXXXXXXX:

Re: Deferred Salary Leave Plan ("DSLP")

This is in reply to your letter dated January 31, 2001 regarding your participation in a DSLP and the effect recent events may have on your plans for retirement.

The Income Tax Regulations ("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 your case, two events have occurred. Firstly, the age and service requirements for your pension plan have been changed so that you could retire immediately after your leave of absence instead of returning to work. Secondly, you have contracted a disease which could possibly force you on to long term disability and preclude your return to work at any time.

In our view, in respect of the change to the terms of your pension plan, until the time that you know with certainty that you will not return to work after your leave of absence as is required by the Regulations, no income inclusion of amounts deferred under the DSLP will be required. If your decision to retire is made after the leave of absence, then the deferred amounts will have already been included in your income for tax purposes during the period of leave and there will be no further income tax consequences.

Similarly, in respect of your illness, until you know for certain that you will definitely not be returning to work no inclusion of amounts deferred under the DSLP will be required. This will be so even if you have begun to draw disability insurance on a temporary basis pending determination of the severity of your illness. The fact that disability income cannot be deferred under the DSLP does not, in and by itself, cause a contravention of the Regulations. It would just mean that you would have less deferred income to draw down during your period of leave. However, if you go on permanent long term disability and will therefore definitely not be returning to work after your period of leave, you will be considered to have terminated your participation in the DSLP and all deferred amounts under the DSLP will be included in your income for tax purposes at that time.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch