24 June 1993 External T.I. 9312995 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.

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Dear Madam:

RE:  Deferred Salary Leave Plan

This is in reply to your letter of April 12, 1993 wherein you requested our views on proposed changes to your deferred salary leave plan.

Your request appears to relate to a specific proposed transaction. As indicated in Information Circular 70-6R2, we do not express opinions on specified proposed transactions other than as a reply to an advance income tax ruling. While we are unable to comment on the income tax consequences attendant on the specific facts described in your letter, the following general comments may be of assistance to you.

Pursuant to paragraph 6801(b) of the Income Tax Regulations ("Regulations"), where the main purpose of a deferred salary leave plan entered into before July 28, 1986 and not materially revised since that date is to provide a means for the employee to fund a leave of absence from employment and the deferrals under the plan commenced before 1987, amounts of salary deferred under the plan will not be subject to the salary deferral arrangement ("SDA") rules contained in the Income Tax Act ("Act"). Accordingly, such deferred amounts need not to be included in income of the employee until such time as they are received when the employee takes his or her leave of absence.

Where an arrangement as described in paragraph 6801(b) of the Regulations is modified to extend the deferral period and to provide for two leaves of absence instead of one, it is our view that it is reasonable to conclude that the modified agreement constitutes a new agreement established after July 28, 1986. For such a new plan, one of the purposes of which is to defer taxes payable, to be exempt from the SDA rules, the conditions of a deferred salary leave plan as defined in paragraph 6801(a) of the Regulations must be satisfied.

One of these conditions is that the leave of absence must not be less than 6 consecutive months and must commence immediately after a deferral period not exceeding 6 years after the date on which the deferrals for the leave of absence commence. Since the new agreement could not meet this condition, it would be a SDA.

Under the circumstances, the participant becomes taxable in the taxation year during which the agreement is modified on salary deferred in respect of services rendered by the participant after June 1986 and up to the end of the year. All amounts deferred in a subsequent year would be taxable in the subsequent year. Moreover, amounts deferred in respect of services rendered before July 1986 would be taxable in the taxation year in which they are received.

The foregoing opinions are not rulings and, in accordance with the guidelines set out in Information Circular 70-6R2 dated September 28, 1990, are not binding on the Department.

We trust our comments will be of assistance to you.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate