20 November 2003 External T.I. 2003-0048485 - DSLP NOT 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 CCRA.

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

Principal Issues:

Effect of inability to return to work for period equal to leave of absence under 6801(a) DSLP

Position:

When unforeseen circumstances prevent the individual from returning to work and all amounts have been paid out under the plan there will be no adverse tax consequences

Reasons: Previous positions taken

XXXXXXXXXX                                            2003-004848
M.P. Baldwin, CA
November 20, 2003

Dear XXXXXXXXXX:

Re: Deferred Salary Leave Plan ("DSLP")

This is in reply to your letter of November 6 and our telephone conversation of November 19, 2003 (Baldwin/XXXXXXXXXX ), in which you request direction in the application of paragraph 6801(a) of the Income Tax Regulations (the "Regulations") regarding leaving employment after a leave due to changed circumstances.

Subparagraph 6801(a)(v) of the Regulations requires a DSLP to provide that an 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 the provision, in general, contemplates a period of leave of absence from employment, followed by a return to work and not by a subsequent retirement or absence from work. 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.

However, where an arrangement meets the provisions of the Regulations at the time it is established, but at some later date due to unforeseen circumstances either the employee or the employer cannot abide by the provisions of the agreement, the arrangement between the employer and the employee will fail to meet the requirements of the Income Tax Act (the "Act") to be a prescribed plan. Consequently, when this occurs the employer should terminate the arrangement and all deferred amounts plus unpaid interest, if any, should be paid to the employee less any applicable withholding tax, and included in his/her income for the year. There is no additional penalty imposed by the Act in these circumstances.

In a situation where an employee has completed the leave of absence and all amounts have been paid out of the DSLP to the employee, there will be no adverse tax consequences if, due to unforeseen circumstances, the employee cannot return to work.

The amounts deferred will not be subject to income tax for years prior to the year in which the period of leave occurred. Accordingly, in our view, based on the fact that your husband now requires a full-time caregiver and that your doctor has advised for medical reasons that you not return to your previous employment, there should be no adverse tax consequences for you being unable to return to your regular employment, now that your leave of absence is over, as required by paragraph 6801(a)(v) of the Regulations.

We trust that the above comments will be assistance to you.

Yours truly,

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