4 July 1989 Ruling 58231 F - 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.

July 4, 1989

Dear Sirs:

Re: Deferred Salary Leave Plan (the "Plan")

This is in reply to your letter of June 6, 1989 wherein you requested an income tax ruling with respect of the above Plan.

We would first like to point out that an advance income tax ruling, which when given is binding upon the Department, may only be provided when the procedures for its request are complied with. A proper request entails the provision of all related documents for our review as well as an identification of all of the specific provisions of the Income Tax Act (the "Act") in respect of which the request is to be considered. The procedures are discussed at length in our Information Circular IC 70_6R, a copy of which is attached for your reference.

While we cannot, at this time, provide a ruling, we can provide our comments in respect of your plan. Section 6800 of the Income Tax Regulations (the "Regulations") (copy enclosed) must be complied with in order for a plan to be exempted as a prescribed plan from the salary deferral arrangement provisions of the Act. In considering its application to your plan, we note the following:

1.     Subparagraph 6801(a)(i) of the Regulations provides that a leave of absence must commence immediately after the deferral period and that the deferral period must not exceed 6 years from the date on which deferrals are commenced. 24(1) in our view the plan should clearly provide that under no circumstances will be a deferral period in excess of six years be allowed.  Should any postponement cause the leave of absence to commence at a later time, the provisions of subparagraph 6801(a)(vi) of the Regulations will have application and all amounts held under the arrangement will have to be paid to the teacher no later than the end of the first taxation year that commences after the end of the six year deferral period.

2.     24(1) For clarity we draw your attention to the provisions of subparagraph 6801(a)(iv) of the Regulations.  This subparagraph provides that any income earned by a plan trust in each calendar year (Clause (A)) or any amount that may reasonably be considered to have accrued to or for the benefit of the employee in a taxation year (Clause (B)) must be paid to the employee by December 31 of that year.

3.     The plan must specifically require a participant to return to his employment after the leave of absence for a period that is not less than the period of the leave of absence.  The plan may, if it is desired, provide for an employee to return to the employ of another employer which participates in the same or similar arrangement.

4.     The Plan agreement provides that the Plan will come into effect upon obtaining a favourable advance income tax ruling. Additionally, Clause 4.2 of schedule A provides in part that tax deductions under the Plan will be subject to and dependent upon your receipt of a satisfactory ruling from Revenue Canada that the plan is not unlawful and is acceptable.

Please be advised that this letter is not an advance income tax ruling as appears to be contemplated by the above provisions but is merely a statement of opinion on the specifics of your proposed plan and is not binding upon the Department.

Please also note that Revenue Canada cannot rule on the "legality" of a plan per se, but may only rule upon the application of the provisions of the Income Tax Act with respect to the plan.

While in our view an advance income tax ruling should not be necessary if the plan is amended as discussed above, should you desire one, we will be pleased to again review your plan upon its amendment and issue a ruling thereon provided your request is made as noted above.

We trust these comments will be satisfactory to your needs.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate