16 January 1990 Ruling 59343 F - Salary Deferral Arrangement - Employee Funded Leave Program

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.

January 16, 1990

Dear Sir or Madam:

Re:  Employee Funded Leave Program (the "Plan")

This is in reply to your letter of December 22, 1989.

You enclosed with your letter a copy of documentation explaining the Plan and ask us to comment on whether or not there is a problem or any mis-information provided therein.  As indicated in that documentation, the provisions governing deferred salary leave plans are contained in paragraph 6801(a) of the Income Tax Regulations (the "Regulations").  Our review of the submitted material indicates 24(1)

24(1)

5.     As indicated above, the Plan must comply with the rules set out in paragraph 6801(a) of the Regulations, not with "Revenue Canada Regulations or guidelines", etc.  We therefore suggest that the following changes be made to the draft Employee Information guidelines:

     24(1)

With respect to the particular points raised in your letter, our comments are as follows:

6.     The proposed procedures set out in point 1 of your letter appear to be appropriate.  However, since they relate to administrative procedures, we suggest that you discuss your proposals with officials of the Edmonton District Taxation Office.

7.     With respect to point 2 of your letter, Canada Pension Plan ("CPP") premiums are to be based on the net salary received by the employee during both the deferral period and the leave period.  Where the deferred amounts are paid to the employee by a trustee, that trustee is deemed to be an employer of the employee by the CPP Act and is therefore required to pay the employer's contribution in respect of that employee.  Thus, the employer portion of CPP Contributions is required to be paid during the leave period regardless of who pays the employee his deferred amounts during that time.  If the employee is to pay both his portion and the employer's portion during the leave period (a matter to be arranged between the employer and the employee) and the trustee/employer recovers the employer's portion from amounts otherwise payable to the employee, the amount so recovered will not form part of the employee's gross salary from that employer.

8.     With respect to point 3 of your letter, we agree with your understanding that Unemployment Insurance premiums are to be based on gross salary during the deferral period and are not payable during the leave period. 24(1)

9.     With respect to point 4 of your letter, the applicable provision is subparagraph 6801(a)(ii) of the Regulations.  That provision in effect requires that the amount deferred in a taxation year not exceed 33 1/3% of the salary or wages that the employee would have received in that year but for the deferment.  Thus, the contributions set out in your example would be within the rules.  However, there is nothing in the Regulations preventing an employer from stipulating that the maximum contributions in any one taxation year is limited to 33 1/3% of the salary or wages that the employee would otherwise receive in that year during the deferral period.

Should the Plan documentation be amended as above, it is our view that the Plan will meet the requirements set out in paragraph 6801(a) of the Regulations.

The above comments reflect an expression of opinion only and are not binding on the Department, as stated in paragraph 24 of Information Circular 70-6R.  We trust however that they are of assistance to you.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate