17 June 1992 External T.I. 9217545 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.

Attention:  The Reverend Chris Carr Associate Director Chaplaincy

Correctional Service Canada2nd Floor, Section F3340 Laurier Street WestOttawa, OntarioK1A 0P9

June 17, 1992

Dear Sirs:

Re:  Salary Deferral Plan for Chaplains Training

This is in reply to your letter of June 3, 1992, in which you ask for our comments concerning a draft salary deferral plan for chaplains working in the Correctional Service of Canada (CSC).  You enclosed  drafts of the plan document, a memorandum of agreement between the employee, employer and regional chaplain, and a memorandum of agreement between the employer and investor.  Our comments follow.

1.       Deferred Salary Leave Plan (the "Plan")

On the first page, last paragraph of "Chaplaincy Division Guidelines", it states that plans may be changed by mutual agreement.  We are not sure what plans may be changed and perhaps this should be clarified.  Please note that an employee may not withdraw from a deferred salary leave plan at will. The arrangement should specify that withdrawal is  only permitted under extenuating circumstances, such as financial hardship, and that the consent of the employer must be obtained. Furthermore, the  period of leave must be taken immediately after the deferral period ends, and the deferral period may last no longer than six years.  Postponement of the leave period or suspension of deferrals must meet these conditions.

On the second page, "Interest" clause, please note that such interest income is considered to be employment income for purposes of the Income Tax Act.  The appropriate T4 slip must be prepared. On the second page, second paragraph of "Deductions and Benefits", you may wish to insert the word "insurance" after the word "unemployment" in the last line.

On the second page, first paragraph of "Administrative Considerations", it may be clearer to state that employees must return to work for a period equal in time to the period they were on leave.  In the second paragraph of the same clause, it should be specified that the percentage of deferral is based on the annual salary received in the calendar year.

You may wish to add two conditions to the "Administrative Considerations" clause which are as follows:

In no event may the leave of absence commence more that six years after the deferral of salary began. All amounts held under the plan must be paid out no later than December 31st of the year after the end of the deferral period. On the third page, fourth paragraph under "Administrative Considerations", the three month leave must be used for full-time attendance at a designated educational institution.  The term "designated educational institution" is defined in the Income Tax Act and the employee may obtain information concerning this subject from the local district taxation office.

On the third page, last paragraph under "Administrative Considerations", there is no prohibition in the Income Tax Act against reimbursing the employee for such costs as tuition or text books.  The Income Tax Act does prohibit the employer from paying the employee any salary or wages during the leave period other than the amount deferred and reasonable fringe benefits which the employer usually pays to or on behalf of the employee.

2.        Memorandum of Agreement between Chaplain, Employer and Regional Chaplain

This Memorandum should contain some of the particulars contained in the Plan document, namely that the employee will return to work for a period of time equal to the leave of absence period, that withdrawal or suspension from the plan can occur only under the conditions stated in the Plan document, that the employee will not receive any wages or salary from the employer or a related person or partnership during the leave of absence other than the deferred amount and the usual fringe benefits, that interest on the deferred amounts will be paid in each year to the employee, and that all amounts held in the plan for the employee will be paid out no later than December 31st of the year following the year in which deferrals ended.

3.       Memorandum of Agreement between the employer and investor

The terms of this Memorandum are at the discretion of the two parties.  You may wish to indicate that the "appropriate income tax form" in clause 6 is a T4.

We trust these comments are helpful.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate