22 October 1992 Income Tax Severed Letter 9228305 - Deferred Salary Leave Plan-hardship

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.

5-922830
         24(1)                             D. S. Delorey
                                           (613) 957-8953

Attention: 19(1)

October 22, 1992

Dear Madam:

This is in reply to your letter of September 25, 1992 concerning deferred salary leave plans that meet the requirements of paragraph 6801(a) of the Income Tax Regulations ("prescribed DSLP").

More particularly, you ask what steps should be taken by an employer to ensure that an employee has just cause for withdrawing from a prescribed DSLP prior to the time that a leave of absence was to commence. Also, you ask how the payment would be taxed and reported in the year of withdrawal.

One of the requirements in paragraph 6801(a) of the Regulations is that the arrangement be entered into to fund a leave of absence. Accordingly, where an arrangement permits withdrawals other than to fund a leave of absence, we have stated that such a provision may indicate that the main purpose of the arrangement is to defer taxes rather than to fund a leave of absence, except where such withdrawals are permitted only at the discretion of the employer and only where the employee can show financial or other hardship. Accordingly, a prescribed DSLP would not be disqualified as such where withdrawals other than to fund a leave of absence are permitted only with the employer's approval and such approval is given only where the employer is satisfied that the employee entered into the arrangement to fund a leave of absence but that financial or other considerations make it a hardship for the employee to continue his or her participation. It is thus a decision to be made by the employer based on the facts of the particular case. Since there is no all-inclusive meaning of "financial or other hardship", we are unable to provide further guidance in this regard on a general enquiry basis. Should you wish to obtain the Department's views with respect to a particular case, we suggest that you address your request to the Ottawa District Taxation Office setting out all the facts.

Where an amount is received out of a prescribed DSLP, it is employment income to be included in computing the recipient's income for the year in which it is received and would be reported as such.

We trust our comments are of assistance.

Yours truly,

for Director Financial Industries Division Rulings Directorate

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