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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Subject: DEFERRED SALARY LEAVE PLAN Section(s): REG 6801]
- 5- 920253 D. Duff (613) 957-8953
XXX
Attention: XXX
February 20, 1992
Dear Sir:
This is in response to your letter of January 20, 1992 concerning your Prepaid Leave Plan ("the plan"). We have restricted our comments to the changes made in paragraphs XXX and to the comments made in your letter.
You wish to structure the plan so that the employee has the option of leaving the interest income in the plan or withdrawing it each year. Regardless of the choice you recognize that the interest earned each year in the plan is employment income and must be reported annually by the employee.
If the employee elects pursuant to paragraph XXXof your plan to leave the interest in the fund it will be considered a contribution by the employee to the plan. Interest income earned on these amounts will also be considered to be employment income and must be reported annually by the employee.
All amounts received out of the plan, both the annual income earned in it and the amounts paid out during the year of leave, will be considered to be employment income except for the previously taxed employee contributions to the plan which are not taxable when returned.
Pensionable income for the purposes of the Canada Pension Plan is the net income including the interest earned in the plan. Income for purposes of the Unemployment Insurance Act is gross income when earned but does not include interest earned in the plan. Paragraph XXX of the plan should be changed to reflect this.
The maximum deferral permitted by Regulation 6801 of the Income Tax Act is one third of the salary that the employee would normally earn without the plan. Therefore any interest earned on the deferred amounts should not be considered when determining this amount.
We trust this is satisfactory.
Yours truly,
for Director,
Financial Industries Division
Rulings Directorate
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© Her Majesty the Queen in Right of Canada, 1992
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© Sa Majesté la Reine du Chef du Canada, 1992
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