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: What are the 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 in time when the conditions in paragraph 6801(a) are not met.
Reasons: The deferred amounts are no longer held under a prescribed plan or arrangement.
XXXXXXXXXX 2003-001438
P. Kohnen
April 24, 2003
Dear XXXXXXXXXX:
Re: Technical Interpretation - Deferred Salary Leave Plan ("DSLP")
This is in response to your e-mail submission of April 17, 2003 wherein you requested our opinion regarding the consequences of a failure to return to work by a teacher who is a member of a DSLP with your school board.
The employee in question has deferred her income under the DSLP for four years and is in her sixth and final month of her deferral leave of absence period. Due to an offer to teach abroad, she will not be returning to her employment with the school board, as is provided for in the DSLP contract.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. For more information concerning advance tax rulings, please refer to Information Circular 70-6R5 dated May 17, 2002. Copies of information circulars, guides and pamphlets are available at your local Tax Services Office or on the Internet at http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following general comments, which may be of assistance.
Paragraph 6801(a) of the Income Tax Regulations (the "Regulations") sets out the rules governing DSLPs and, in particular, requires 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 a bona fide period of leave. 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 where the decision to not return to work results in the arrangement being terminated at a point in time at which all amounts held under the DSLP have already been paid to the employee, there will be no further tax consequences. In addition, the termination of the arrangement for an employee will not, in and by itself, impact upon whether arrangements between other employees and the employer continue to satisfy the requirements of paragraph 6801(a) of the Regulations.
We trust that the above comments will be of assistance to you.
Yours truly,
Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
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