2 November 2005 External T.I. 2005-0154431E5 - Deferred Salary Leave Plan - 10 month Employee

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: Can an employee of a school board who works for 10 months each year and is out of work and collecting EI benefits for the other 2 months each year remain in the DSLP over the course of several such periods of employment?

Position: No.

Reasons: Violates the requirements of subparagraph 6801(a)(i). There would be a series of deferrals, rather than a period of deferral. Also, the leave would commence after the individual has ceased employment, thus it cannot be considered to be a leave of absence.

XXXXXXXXXX 							2005-015443
P. Kohnen, CMA
November 2, 2005

Dear XXXXXXXXXX:

Re: Technical Interpretation - Deferred Salary Leave Plan ("DSLP")

This is in response to your submission of October 13, 2005 and our recent telephone conversations (XXXXXXXXXX/Kohnen) in which we discussed the comments previously provided by our directorate in document 2005-0122901E5 regarding the participation by certain employee groups in a DSLP.

Based on our discussions and the contents of your submission, it is our understanding that the XXXXXXXXXX (the "Board") employs some individuals who only work for 10 months each year and who, while they are out of work in June and July each year, are eligible to collect Employment Insurance benefits. You have asked for our confirmation on the acceptability of participation by such individuals in a DSLP and that we clarify what constitutes a "term contract employee".

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an Advance Income Tax Ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.

Our comments

As was noted in document 2005-0122901E5, it would not be acceptable for an individual whose employment lasts for 10 months each year and who is not employed by the Board for the remaining two months of each year to participate in the DSLP that is generally made available to employees of your school board.

It should be noted that it is irrelevant whether we refer to a specific employee as a "term contract employee", or use some other terminology to describe their employment. The key issue of concern here is the fact that the employees in question cease to be employed by the Board for a period of time each year, as is noted in your submission.

In our view, the participation of such a member on an ongoing basis would violate subparagraph 6801(a)(i) of the Income Tax Regulations, which requires that the leave of absence commence immediately after a period of deferrals. Where an individual is only employed for a portion of each calendar year, there would not be one period of deferrals, but rather, a series of periods of deferral, thus the requirement would not be met.

Furthermore, we noted from your submissions in regard to document 2005-0122901E5 that the proposed leave for such a member under the DSLP would commence when the employee is no longer working (at or near the end of June). At that point, it would not be accurately described as a leave of absence, as the individual would no longer be an employee.

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

Yours truly,

Mary Pat Baldwin, CA
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate