26 October 1992 Income Tax Severed Letter 9230155 - 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.

5-923015
24(1) M. Shea-DesRosiers
(613) 957-8953

Attention: 19(1)

October 26, 1992
Dear Sir/Madam:

Re: 24(1) Deferred Salary Leave Plan (the "Plan") Section 6801 of the Income Tax Regulations (the "Regulations")

This is in reply to your letter of September 17, 1992 with an enclosed draft copy of your Plan addressed to the Calgary District Office which was sent to us for our reply. You have requested that we confirm that your draft Plan complies with the provisions of section 6801 of the Income Tax Regulations (the "Regulations").

A deferred salary leave plan does not have to be approved by the Department in order for it to comply with provisions of section 6801 of the Regulations. However, a confirmation that your draft Plan does meet these provisions can be

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obtained in the form of an advance income tax ruling if you so desire and a request for it is submitted in the manner set out in Information Circular 70-6R2, a copy of which is enclosed.

It is our opinion, however, that your draft Plan constitutes a prescribed plan or arrangement under paragraph 6801(a) of the Regulations.

Canada Pension Plan and Unemployment Insurance Premiums

The following comments reflect the Department's position concerning unemployment insurance premiums and Canada Pension Plan ("CPP") contributions. You may wish to include some or all of the comments in the Plan.

Unemployment premiums are to be based on the employee's gross salary during the period of deferral and no premiums are to be withheld from the deferred amounts when paid to the employee during the leave period.

CPP contributions are to be based on the employee's salary net of the deferred amounts during the deferral period 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.

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, although 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.

The trustee will be required to prepare T4s reflecting the amount paid by the trustee to the employee under the Plans 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

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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.

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:

• CPP/UI Programs Section Source Deductions Division Revenue Canada Taxation 875 Heron Road Ottawa, Ontario K1A 0L8

It should be noted that our comments with respect to the Plan should not be construed as a binding advance income tax ruling. We trust, however, that our comments are of assistance.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate

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