31 August 2004 External T.I. 2004-0090581E5 - 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.

Principal Issues: Whether a participant in a DSLP can reduce contributions.

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

Reasons: The Act and previous positions.

XXXXXXXXXX
2004-009058
W. C. Harding
August 31, 2004

Dear XXXXXXXXXX:

Re: Deferred Salary Leave Plan ("DSLP")

This is in reply to your electronic correspondence of August 11, 2004 wherein you requested clarification on whether a participant in your DSLP can suspend participation in the DSLP in the following circumstances.

The DSLP complies with the provisions of paragraph 6801(a) of the Income Tax Regulations. A participant who currently participates in the DSLP is required to defer 25% of the participant's remuneration in each of the first three years and take a one-year leave of absence in the fourth year. In the fourth year, the participant receives the accumulated deferred remuneration. In the second year, the participant takes an unpaid leave of absence due to a family related emergency. The participant then returns to work for the third year. You have asked if it is permissible for the participant to take the leave of absence under the DSLP in the fourth year.

As we explained in our letter to you of May 17, 2004 (our file 2004-007381), 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").

If a participant takes a one year unpaid leave of absence during the deferral period but is still considered to be an employee for the purposes of the DSLP, the DSLP would generally continue to apply. Furthermore, since the employee would not normally receive any remuneration during this leave of absence, the deferrals required under the DSLP would also be nil. When the employee returns to active duty, the employee's deferrals would resume based on the remuneration received in the third year. Accordingly, it would seem to us, that the participant will have fully complied with the provisions of the DSLP, as presently written, and would be entitled to take the leave of absence in the fourth year as scheduled.

If the participant in this scenario, instead of taking an unpaid leave of absence, works part-time for a year, the provisions of the plan could continue in the same manner. However, if the continuation of the deferrals during the period of part-time employment would cause financial hardship, in our view, the DSLP agreement between the employer and the participant could be amended to reduce or eliminate the deferrals for the duration of the part-time employment and/or to extend the deferral period, provided, as discussed in our previous letter to you, the deferral period does not exceed six years after the date on which the deferrals commenced, and the leave of absence is taken immediately thereafter.

We trust our comments will be of assistance to you.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch

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