2002 Ruling 2001-0109853 - 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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

Does a deferred salary leave plan satisfy the requirements of 6801(a)?

Position: Yes.

Reasons: Review of plan.

XXXXXXXXXX 						2001-010985

XXXXXXXXXX, 2002

Dear XXXXXXXXXX:

Re: Deferred Salary Leave Plan for Employees,
XXXXXXXXXX

This letter is a reply to your letter dated XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of XXXXXXXXXX (the "Employer"). We also acknowledge your facsimile transmissions of XXXXXXXXXX.

We understand that, to the best of your knowledge and that of the Employer, none of the issues involved in the ruling request is:

(i) in an earlier return of the Employer or a related person,

(ii) being considered by a tax services office or tax centre in connection with a previously filed tax return of the Employer or a related person,

(iii) under objection by the Employer or a related person,

(iv) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; nor

(v) the subject of a ruling previously issued by the Directorate.

Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the "Act") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.

Definitions

For the purpose of this Ruling, the following terms have the meanings specified:

a) "Bargaining Agent" means XXXXXXXXXX;

b) "Bargaining Unit" means XXXXXXXXXX;

c) "Collective Agreement" means the agreement between the Employer and the Bargaining Agent;

d) "Employees" mean the employees as defined in XXXXXXXXXX the Collective Agreement;

e) "Hourly Rate of Pay" means the rates of pay specified in XXXXXXXXXX the Collective Agreement;

f) "Pension Plan" means the XXXXXXXXXX;

g) XXXXXXXXXX.

Our understanding of the facts and proposed plan is as follows:

Facts

1. The Employer is a tax-exempt entity.

2. The Bargaining Agent represents the employees of the Employer in the Bargaining Unit to whom this Self-Funded Leave Plan (the "Leave Plan") will be available.

3. The Employer and the Bargaining Agent agreed to establish a self-funded leave plan, subject to the granting of a favorable advance tax ruling.

4. No employees have been enrolled in the Leave Plan as of today's date.

5. The Employer, upon receipt of a favorable advance tax ruling, will implement the Leave Plan and enrollments will be permitted.

6. Employees covered by the Collective Agreement are paid on an hourly basis and typically work part-time. The employee groups who are included in the Bargaining Unit are listed in XXXXXXXXXX the Collective Agreement. XXXXXXXXXX.

Proposed Plan

7. This Leave Plan is designed to provide continuing Employees with an opportunity for paid leave and is not established to provide benefits to persons on or after retirement. The features of the Leave Plan are as set out in 8 through 31 below.

8. This Leave Plan shall be open to all Employees on XXXXXXXXXX.

9. An Employee who wishes to participate in the Leave Plan shall make application by XXXXXXXXXX for participation in the Leave Plan commencing the XXXXXXXXXX.

10. The Employer may accept or reject an Employee's application for the Leave Plan.

11. A maximum of XXXXXXXXXX Employees may receive approval for the Leave Plan for any year in accordance with established selection guidelines.

12. A committee comprised of XXXXXXXXXX Employer and XXXXXXXXXX Employee representatives (the "Implementation Committee") shall be convened to design the implementation process for the Leave Plan and to prepare the guidelines to be used for the selection of applicants.

In preparing selection guidelines for applicants to the Leave Plan, the Implementation Committee shall take into consideration the following items:

(a) Seniority

(b) Job Function

(c) Previously taken leaves of absence (excluding Pregnancy/Parental Leaves).

13. XXXXXXXXXX.

14. The year of leave shall be for a twelve (12) month period commencing XXXXXXXXXX.

15. Withdrawal at the option of the Employee will be permitted only by reason of extenuating circumstances and on approval by the Employer. "Extenuating circumstances," means those circumstances, including such things as illness and change in family circumstances, that would result in financial hardship to the Employee. Such withdrawal will be granted by the Employer unless the Employer has reasonable grounds to believe the request to withdraw is capricious or is not based on bona fide extenuating circumstances. Payment of deferred funds upon withdrawal must be made within XXXXXXXXXX days of withdrawal.

16. An Employee on leave shall continue to accumulate seniority and, if applicable, experience for salary purposes and service for vacation entitlement only.

17. In each of the XXXXXXXXXX years of the work period that the Employee works for the Employer, the Employer agrees:

(a) to pay to the Employee XXXXXXXXXX of the total earnings, to which but for this Leave Plan the Employee would otherwise be entitled;

(b) if applicable, to continue to pay the Employer's share of the cost of the Employee's insured employee benefits; and

(c) if applicable, to continue the Employer's contribution to the Pension Plan based on 100% of the total earnings. Earnings are based on the hourly rate of pay only.

18. In the one year of the leave period, the Employer will pay:

(a) to the Employee the following:

(XXXXXXXXXX% of the average # of hours paid in the first XXXXXXXXXX years of the Leave Plan) * Hourly Rate of Pay in the XXXXXXXXXX year of the Leave Plan

(b) if applicable, one hundred percent (100%) of the cost of the XXXXXXXXXX share of the insured employee benefits to which the employee would otherwise be entitled if the employee were not on the leave of absence; and

(c) if applicable, its contribution to the Pension Plan for contributions based on one hundred percent (100%) of 18(a) above.

19. In consideration of the payments and the share of insured Employee benefits, where applicable, which will be paid by the Employer during the leave period, as set out in 18 above, the Employee agrees to the reduced earnings which will be paid by the Employer during the work period, as set out in 17 above.

20. Payments to the Employee during the leave period shall become due and be paid on the Employer's regular payroll dates. Payments must be completed by the end of the first taxation year after the deferral period.

21. The Employer shall make:

(a) the appropriate payroll deductions for income tax purposes and other purposes as are required by law and the Employee shall continue to maintain his/her share of insured employee benefits, if applicable, by direct withdrawal;

(b) the appropriate payroll deductions for the Pension Plan based on 100% as per 17(c) above;

(c) if applicable, other deductions consistent with those made for other Employees who are not on leave if requested to do so by the Employee.

22. The Employer, for operational reasons, may request that an Employee defer the period of leave for one year. An Employee, for personal reasons, may elect to defer the period of leave for one year. The Employer's request or the Employee's election shall be made not later than XXXXXXXXXX months prior to the starting date of the period of leave or such other period if mutually agreed. If the leave period is postponed from the XXXXXXXXXX year to a XXXXXXXXXX year, payment of earnings shall revert to 100% and entitlement to employee benefits shall be determined as per XXXXXXXXXX the Collective Agreement. When the postponed leave is actually taken in the XXXXXXXXXX year, the Employer shall pay in accordance with 20 above:

(a) the amount as per 17(a); and

(b) if applicable, one hundred percent (100%) of the cost of the Employer's share of the insured employee benefits to which the Employee would otherwise be entitled if the Employee were not on the leave of absence.

23. If the Employee dies during the term of his/her participation in this Leave Plan before the leave period has commenced, the actual monies withheld during the work period shall be paid to the Employee's estate. Payments of deferred funds upon death shall be made within XXXXXXXXXX days of such event.

24. If the Employee dies during the term of his/her participation in this Leave Plan after having commenced the leave period, the Employer shall determine the difference between the actual monies paid during the leave period and the actual monies withheld during the work period. Should the actual monies withheld during the work period exceed the actual monies paid during the leave period, the difference shall be paid by the Employer to the Employee's estate. Should the actual monies paid during the leave period exceed the actual monies withheld during the work period, the Employee's estate shall not be liable to pay this difference to the Employer. Payments of deferred funds upon death shall be made within XXXXXXXXXX days of such event.

25. If, as a result of accident, injury or illness, the Employee becomes permanently disabled during the term of his/her participation in this Leave Plan and, in the opinion of the Employer's doctor(s), is no longer medically fit to carry out the Employee's duties, his/her participation in this Leave Plan will be terminated forthwith and the Employer shall determine the actual monies withheld during the work period and the actual monies paid during the leave period. Should the actual monies withheld during the work period exceed the actual monies paid during the leave period, the Employer shall pay this difference to the Employee. Should the actual monies paid during the leave period exceed the actual monies withheld during the work period, the Employee shall not be required to repay this difference to the Employer. Payments of deferred funds upon permanent disability shall be made within XXXXXXXXXX days of such event.

26. In the event an Employee is granted a leave without pay during the term of his/her participation in this Leave Plan, the period of the Leave Plan shall be extended by the length of the term of the leave without pay provided that the period covered by this Leave Plan shall not exceed XXXXXXXXXX years in any case.

27. No interest shall be payable by the Employer or by the Employee on any monies payable by either of them under the Leave Plan.

28. Should the Employee retire, resign or accept a position with the Employer but outside the Bargaining Unit, this agreement shall terminate forthwith and any monies payable to either party shall be determined as set out in 25 above. Payment of deferred funds upon retirement, resignation or reassignment outside the Bargaining Unit shall be made within XXXXXXXXXX days of such event.

29. Participation in the Leave Plan shall not be construed as a guarantee of employment for the term of the Leave Plan.

30. The Employee shall return to his/her position if it exists, or if it no longer exists, to the position the returning Employee would otherwise be entitled under the provisions of the Collective Agreement including XXXXXXXXXX for XXXXXXXXXX following the year of leave.

Purpose of the Proposed Plan

31. The Employer and the Bargaining Agent have agreed to implement a self-funded leave plan subject to the granting of a favorable advance tax ruling. The purpose of the proposed Leave Plan is to allow Employees to fund a leave of absence.

Additional Information

32. The Employer views reassignment outside the Bargaining Unit as akin to a true termination of employment and submits that it is not possible for an Employee to accept a position with the Employer outside the Bargaining Unit and continue their participation in the Leave Plan due to the following reasons:

(a) the Employer does not offer self-funded leave plans to all employee groups;

(b) it would interfere in the labour relations of the Employer;

(c) it may compromise the Employer's ability to provide XXXXXXXXXX by affecting the Employer's ability to plan and account for the number of employees who will be on self-funded leaves of absence;

(d) it may compromise the integrity of the enrolment/application process under the Employer's various self-funded leave plans; and

(e) the integrity of the collective bargaining relationships between the Employer and the unions representing employees may be upset.

Ruling Given

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed Leave Plan and purpose of the proposed Leave Plan, and provided that the terms of the Leave Plan are as described above, we rule as follows:

A. The Leave Plan satisfies the requirements of paragraph 6801(a) of the Income Tax Regulations and will therefore be excluded from the definition of "salary deferral arrangement" as that term is defined in subsection 248(1) of the Act.

The above ruling, which is based on the Act in its present form and does not take into account any proposed amendments thereto, is given subject to the general limitations and qualifications set out in Information Circular 70-6R4 dated January 29, 2001, and is binding on the Canada Customs and Revenue Agency provided that the Leave Plan is implemented by XXXXXXXXXX.

Yours truly,

XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate