27 August 1990 External T.I. 901010 F - Self-funded 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.

Attention:  19(1)

August 27, 1990

Dear Sirs:

Re:  Self-Funded Leave Plan (the "Plan")

This is in reply to your letter of May 28, 1990 with an attached copy of your proposed Plan for   24(1)

You request that we confirm that the content of the Plan complies with the provisions of section 6801 of the Income Tax Regulations (the "Regulations").

As noted in Information Circular 70-6R, we do not express opinions on specific proposed transactions other than as a reply to an advance income tax ruling request.  As a consequence thereof, we may only offer the following general comments.

Our review of the submitted Plan indicates that, in general, it complies with the provisions of paragraph 6801(a) of the Regulations.  However, we did note the following concerns in order to ensure that it complies therewith.

1.     Any amount in respect of interest or other additional amounts that may reasonably be considered to have accrued  to or for the benefit of the employee to the end of the  taxation year (December 31) must be paid in the year to  the employee.  These amounts are to be treated as employment income for the purposes of the Income Tax Act.  In consequence, the amounts, when received, must be  included on the employee's T4 supplementary and the usual  tax withholdings and remittances must be made.

2.     24(1)

3.     Canada Pension Plan ("CPP") premiums are to be based on  the employee's salary net of the deferred amounts during  the period of deferral and on the deferred amounts when  paid to the employee during the leave period.  When the  deferred amounts are paid to the employee by a trustee of  the Plan during the leave period, that trustee is deemed  by the CPP Act to be an employer of the employee and is  therefore required to pay the employer's CPP   contribution in respect of that employee.  Where the trustee/employer recovers the employer's CPP contribution  from amounts otherwise payable to the employee, it is our  view that this recovered amount will not be part of the  employee's gross salary from that trustee/employer and   therefore need not be included on the employee's T4 slip.

The above comment that the trustee is deemed to be an employer of the employee by the CPP Act is meant to clarify that although the trustee is deemed under the CPP Act to be an employer, the employee does not enter into new employment with the trustee when he goes on leave.  Consequently, while CPP contributions that are required to be paid during the leave period are to be deducted and remitted by the trustee as by any other employer, those CPP contributions paid in the year prior to the leave period must be taken into consideration by the trustee.  For example, if the required CPP contributions for a year by an employee were $600 and the employee contributed $400 before going on leave, the trustee would be required to deduct and remit CPP contributions for that year of $200 on behalf of the employee, plus the employer's portion.

The trustee will be required to prepare T4s reflecting the amount paid by the trustee to the employees under the Plans and, among other things, the CPP contributions.  However, since CPP contributions made during the year prior to the leave period are to be taken into consideration by the  trustee, the amount of contributory earnings reported by the trustee may not coincide with the earnings reported in box "C" for that particular year.  If such is the case, the amount of contributory earnings must be recorded in box "I" of the T4 which should in turn coincide with the amount of contributions reported in box "D".  There may also be instances where the trustee will not have made any deductions for CPP because the employee reached the maximum contributions prior to the leave period.  If such is the case, a check mark should be indicated in box "J" of the T4 under CPP.

If further information is required concerning the trustee's responsibility with respect to CPP contributions or the preparation of T4s etc, the enquiry should be directed to Mr. Pierre M. Paquette at (613)952-8179 or to the following address:

     Coverage Policy and Legislation SectionSource Deductions DivisionRevenue Canada Taxation 875 Heron RoadOttawa, OntarioKlA OL8

Provided that the Plan is amended as noLed above, it is our opinion that the Plan will be a prescribed plan under paragraph 6801(a) of the Regulations.

The above comments are an expression of opinion only and as indicated in Information Circular 7O-6R, they are not binding upon the Department.  We trust however that they will be of assistance to you.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate