17 May 2004 External T.I. 2004-0073811E5 - Deferred Salary Leave Plan - Postponement

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.

Principal Issues:

Whether a participant in a DSLP can postpone his/her leave of absence?

Position:

Yes, if the deferral period does not exceed 6 years.

Reasons:

The Act and previous positions.

XXXXXXXXXX 2004-007381
L. J. Roy, CGA
May 17, 2004

Dear XXXXXXXXXX:

Re: Deferred Salary Leave Plan ("DSLP")

This is in reply to your electronic message of April 29, 2004 wherein you requested clarification on whether a participant in your DSLP can postpone his/her leave of absence in the following circumstances.

A participant under your DSLP has deferred his/her leave of absence for one year as permitted under the DSLP. Due to extenuating circumstances, the participant wants to postpone his/her leave of absence for an additional three years.

This Directorate can only provide written confirmation regarding the tax implications inherent in particular transactions where the transactions are proposed and are the subject matter of an advance income tax ruling request. You may refer to Information Circular 70-6R5 dated May 17, 2002 for more information concerning advance income tax rulings. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. The following comments are, therefore, of a general nature only and are not binding on the Canada Revenue Agency ("CRA").

Subparagraph 6801(a)(i) of the Income Tax Regulations (the "Regulations") provides that a leave of absence must commence immediately after the deferral period and that the deferral period must not exceed six (6) years after the date on which the deferrals for the leave of absence commence. In our view, under no circumstance will a deferral period in excess of 6 years be allowed. The provisions of subparagraph 6801(a)(vi) of the Regulations require that all amounts held under the arrangement have to be paid to the employee no later that the end of the first taxation year that commences after the end of the deferral period. For example, where a deferral period commenced on September 1, 2000, the leave of absence must commence, at the latest, immediately after the period of six (6) years starting on September 2, 2000.

If a participant in your plan wishes to postpone his/her leave, such postponement may be possible if the above condition is satisfied. However, since your DSLP does not provide for such a postponement, it would have to be amended accordingly.

Where an arrangement meets the conditions required under paragraph 6801(a) of the Regulations at the time it is established, but, at some later time, a condition ceases to be satisfied, we are of the view that the arrangement will cease to meet the requirements of the Regulations at that point in time. Generally, when this happens, the employer should terminate the arrangement and pay all deferred amounts (including interest) held for the benefit of the employee to him or her, less any applicable withholding taxes. If the arrangement is not terminated, it would be subject to the SDA rules in the taxation year it is known that the arrangement ceases to satisfy the conditions of paragraph 6801(a) of the Regulations and the deferred amounts would be taxable employment income in that year. In addition, any further amounts that are deferred and any interest accrued after the time the arrangement becomes an SDA are taxable in the year of deferral.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch