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: Where an employee is enrolled in a deferred salary leave plan with an employer, can the participant enrol in a second DSLP with the same employer and commence salary deferral under two plans simultaneously?
Position: Question of fact - general comments provided
Reasons: Such a determination would depend on the terms of the employer's plan and to the extent the conditions under Regulation 6801(a) of the Act are satisfied.
2008-026824
XXXXXXXXXX Kimberly Duval, CA
(613) 957-8585
December 5, 2008
Dear XXXXXXXXXX :
Re: Deferred Salary Leave Plan - Employees' Participation in Multiple Plans
We are writing in response to your e-mail correspondence of February 14, 2008, requesting our comments as to whether an employee who has postponed his or her leave period under an employer's Deferred Salary Leave Plan ("DSLP"), can enroll in a second DSLP plan with the same employer and begin to defer salary under this second plan during the postponed year of leave.
Written confirmation of the tax implications inherent in particular transactions can be provided by this Directorate 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").
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") and these rules 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.
The CRA has opined in the past that, subject to the terms of the specific DSLP, a participant may start a deferral period and if for some reason is unable to continue deferrals of salary on a temporary basis, like for example during a maternity leave period, but still wishes to take a leave of absence at a later date, salary deferrals may be suspended and the deferred amounts may remain in the plan. However, 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. However, this determination will ultimately be a question of fact.
Accordingly, as an employer's DSLP is administered based on the terms of the particular plan, whether or not the simultaneous enrolment by an employee in two separate arrangements with the same employer would result in either plan ceasing to meet the conditions expressed in Regulation 6801(a) of the Act with respect to the particular plan, is ultimately a question of fact. Should you have concerns in this regard with respect to your particular plan, we would be pleased to consider the issue in the context of an advance tax ruling request.
We trust our 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
Policy and Planning Branch
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