20 April 2001 Ministerial Correspondence 2001-0076124 - EFFECT OF EARLY RETIREMENT ON SDA

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: Must an employee who participates in a DSLP return to work after a leave of absence?

Position: Yes. but if circumstances change the plan may terminate.

Reasons: A return to employment clause is required in the agreement under regulation 6801.

Signed on April 20, 2001

XXXXXXXXXX

Dear XXXXXXXXXX:

Thank you for your letter of January 31, 2001, on behalf of your constituent, XXXXXXXXXX, concerning the effect her participation in a deferred salary leave plan (DSLP) may have on her plans for retirement.

The Income Tax Act includes provisions which were designed to prevent the deferral of income and require that remuneration deferred by an employee through a salary deferral arrangement be taxed in the employee's hands on an accrual basis rather then when it is received. The Income Tax Regulations governing DSLPs were intended to provide relief from these provisions and were developed in response to representations made by various teachers' groups, school boards and other associations that typically grant sabbatical leaves to their employees.

The Regulations governing DSLPs require that a plan must provide that employees 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 a bona fide leave of absence and is not followed by a subsequent retirement. Accordingly, it would be inappropriate to provide an exception to XXXXXXXXXX if she intends to retire immediately after her return from her leave of absence.

In response to XXXXXXXXXX request for the consequences should an employee not return to work, if, when the arrangement is established, an 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 hand, where an arrangement meets the provisions of the Regulations when 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 the employee, less any applicable withholding tax.

I trust that my comments will be of assistance in replying to XXXXXXXXXX.

				Yours sincerely,

					Martin Cauchon
Wayne Harding
957-9769
March 28, 2001
2001-007612