13 December 1991 External T.I. 9128715 F - Deferred Salary Leave Plan, CPP, UIC

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.

5-912871

Dear Sirs:  

Re: Deferred Salary Leave Plan ("DSLP")

This is in reply to your letter of September 23, 1991, in which you requested clarification of whether or not the above-noted plan is an employee benefit plan (an "EBP") and how UIC and CPP contributions are to be determined in respect of amounts paid out of the plan.

With respect to your enquiries, we can advise that the plan is an EBP and is therefore in general subject to the provisions of the Income Tax Act (the "Act") pertaining to such plans as discussed at length in the Department's Interpretation Bulletin IT 502. 

However, with respect to the requirements for UIC and CPP contributions, in the case of an EBP which is also a DSLP the comments contained in paragraph 48 of the bulletin are not applicable and the provisions of paragraph 7(c) of the statement of facts in our ruling of April 28,1988 are no longer applicable.

The following comments reflect the Department's position concerning unemployment insurance premiums and Canada pension plan ("CPP") contributions as developed in cooperation with the Unemployment Insurance Commission:

1.      Unemployment insurance premiums are to be based on the gross salary during the deferral period and are not payable during the leave period;

2.      It is the Department's position that 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;

3.      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, 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;

4.      The trustee will be required to prepare T4s reflecting the amount paid by the trustee to the employees under the Plan 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; and

5.      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) 952-5433 or to the following address:

Coverage Policy and Legislation Section Source Deductions Division Revenue Canada Taxation 875 Heron Road Ottawa, Ontario K1A 0L8.

The existence of the provisions of your plan which limit the UIC contributions to amounts calculated on the net income received by an employee during the deferral period will not impact on the validity of our ruling, as previously provided, that the plan is a prescribed plan as defined in paragraph 6801(a) of the Income Tax Regulations.  However, the provision may have significant impact on the benefits which employees covered by the Plan may receive.  We would therefore suggest you contact Mr. Paquette at your earliest convenience in order to determine what corrective actions can now be taken.

When this problem was first noted the Department did undertake to contact the various organizations that had received rulings for DSLPs to inform them of the change in our position.  With the number of groups involved however, it was inevitable that we would miss some and it is with our regrets that we appear to have missed the  24(1)and we apologize for any problems this may occasion.

Yours truly,

for DirectorFinancial Industries DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch