12 June 2007 External T.I. 2007-0226571E5 - 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 temporarily suspend salary deferrals.

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

Reasons: The Act and previous positions.

								2007-022657
XXXXXXXXXX 							Bruce Hartt
(613) 946-3558
June 12, 2007

Dear XXXXXXXXXX:

Re: Request for technical interpretation - Deferred Salary Leave Plan

This is in reply to your letter of March 5, 2007. In your letter you outlined a number of different circumstances that would require a participant in a deferred salary leave plan ("DSLP") to suspend their contributions during the deferral period. You have asked for our comments on whether or not a participant would be allowed to suspend contributions to a DSLP without triggering the end of the deferral period and the start of the leave period.

Our Comments:

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 submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry 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). All publications referred to herein can be accessed on the CRA website at the following address: http://www.cra-arc.gc.ca/tax/technical/incometax/menu-e.html.

A DSLP is a plan or arrangement that permits an employee to defer salary or wages in order to fund a leave of absence from his or her employment. The rules governing DSLPs are set out in paragraph 6801(a) of the Income Tax Regulations (the "Regulations"). Generally, the Regulations state that all salary deferrals must be completed in a deferral period that commences on the date the deferrals begin and ends before the leave of absence occurs. The leave of absence must follow immediately after the deferral period.

Once a participant starts the deferral period and if for some unforeseen reason is unable to continue deferrals of salary on a temporary basis, but still wishes to take a leave of absence later, salary deferrals can be suspended and the deferred amounts can remain in the plan. Given the time limits for the deferral period and the commencement of the leave of absence, any such suspension cannot result in either (i) the deferral period lasting longer than six years (including the period of suspension), or (ii) the leave of absence starting later than immediately after the end of the deferral period.

If as a result of the suspension period, the employee no longer meets the provisions of the Regulations as outlined in (i) and (ii) above, then the arrangement has ceased to be a prescribed plan under the requirements of the Regulations. When this occurs, the employer should terminate the arrangement, the employee would withdraw from the plan 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.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch