24 October 1991 External T.I. 9118605 F - Educational 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.

Dear Sir:

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

We are writing in reply to your letter of July 2, l991, in which you ask for our opinion concerning the above-noted Plan, a copy of which you enclosed.  You also asked for advice concerning the registration process for such plans.

There is no registration process for deferred salary leave plans under the Income Tax Act (the "Act).  The Department, however, will review the terms of such a plan and provide an opinion on whether it complies with the requirements of the Act or, for a fee, will issue a binding ruling which sets out the income tax consequences for participants of such a plan.  If you wish to obtain a ruling, enclosed is a copy of Information Circular 70-6R2 ("Advance Income Tax Rulings") which explains how to apply.

We have reviewed the terms of the Plan as provided by you and have the following comments.

On page 60 of the enclosure, paragraph (a) of Leave of Absence, it states that the collective agreement regarding leaves of absence shall apply.  There may be terms in the collective agreement which contravene the requirements of the Act so we are unable to provide a definitive opinion on your Plan at this time. Furthermore, the collective agreement may contain some of the following required elements which the Plan terms as submitted do not.

1.   Page 59, The Plan - should provide that leaves will be in excess of six (6) consecutive months.  Also note that the Act was recently amended so that leaves of absence may be for not less than three consecutive months if the purpose is to attend fulltime at a  "designated educational institution" (as defined in subsection 118.6(1) of the Act).

2.   The leave of absence must commence by the end of six years after salary deferral commences.

3.   The employee may not receive any salary or wages during the leave of absence from the employer or from any person or partnership with whom the employer does not deal at arm's length.  During the leave the employee may receive, however, the deferred salary, and reasonable fringe benefits which the employer usually pays to or on behalf of the employees.

4.   Any income earned on the monies remitted for the employee to the carrier of the Plan must be paid out each taxation year to the employee.  Such amounts are considered to be employment income and the employer or the carrier must prepare the usual T4 slip.

5.   The employee must return to his or her regular employment with the employer after the leave of absence for a period at least equal to the period of leave.

6.   All the deferred amounts must be paid to the employee no later that the end of the first taxation year that commences six years after the salary deferral began.

Enclosed is 39 which describes a deferred salary leave plan which complies with the requirements of the Act.  We trust the foregoing comments will assist.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate