9 November 1989 External T.I. 74435 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.

November 9, 1989

Dear Sirs:

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

Your letter of September 28, 1989 addressed to Revenue Canada, Taxation in Winnipeg has been referred to this office for reply.

You enclosed with your letter a copy of the Plan, together with a copy of a proposed Memorandum Agreement to be signed by a participant, and request an advance income tax ruling with respect thereto. We are unable to provide the requested ruling since such rulings are given only in reply to requests submitted in the manner set out in Information Circular 70-6R, a copy of which is enclosed for your perusal. The current hourly rate is $65 and the current minimum fee that must accompany such request is $325. We nevertheless offer the following general comments.

The provisions that govern deferred salary leave plans are contained in paragraph 6801(a) of the Income Tax Regulations (the "Regulations"). Our review of the submitted material indicates that the Plan, in general, complies with those provisions. We did note, however, the following:

1.     The Plan must clearly provide that the leave of absence is to commence immediately after the deferral period and the deferral period cannot exceed six years. 24(1)

2.     The Plan must provide that all amounts held for a participant's benefit are to be paid to the participant by December 31 of the year that commences after the end of the deferral period. 24(1)

3.     The Plan must provide that throughout the period of leave of absence the participant does not receive any salary or wages from the employer, or from a person with whom the employer does not deal at arm's length, other than the deferred amounts and reasonable benefits. 24(1)

4.     The Plan must provide that any amounts (interest or otherwise) earned in a calendar year on a participant's deferred amounts must be paid to the participant by December 31 of that year. 24(1)

5.     It should be noted in the Plan that unemployment insurance premiums will be based on the gross salary during the deferral period and will not be payable during the leave period, and that Canada pension plan deductions will be based on net salary during both the deferral period and the leave period.

6.     

7.     24(1)

8.     

24(1)

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

As previously indicated, this letter is not an advance income tax ruling as requested. Rather, it reflects expressions of opinion only which, as stated in paragraph 24 of Information Circular 70-6R, are not binding on the Department. We trust, however, that our comments will be of assistance.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate