13 June 2001 External T.I. 2001-0081085 - DSLP RETURNING TO WORK

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: What are tax consequences if an employee does not return to work after a period of leave under a 6801(a) plan?

Position: Deferred amounts are taxable at the point where all the conditions of 6801(a) are not met.

Reasons: The deferred amounts are no longer part of a prescribed plan.

XXXXXXXXXX 		2001-008108
S. E. Thomson
June 13, 2001

Dear XXXXXXXXXX:

Re: Deferred Salary Leave Plan (DSLP)

We are replying to your letter of April 10, 2001 in which you ask various questions related to your deferred salary leave plan ("DSLP"). In particular, you are contemplating taking early retirement, rather than returning to work after the leave period, and would like to know the tax consequences of your decision.

Paragraph 6801(a) of the Income Tax Regulations (the "Regulations) sets 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 hand, 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.

Note that if the decision to retire is made only after the end of the leave of absence, and only because of unforeseen circumstances, there would not be any further tax consequences. This is because, although the decision to retire would result in the termination of the arrangement, all of the amounts held under the arrangement would have been paid over the period of the leave of absence.

We trust that our comments have been helpful.

Yours truly,

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