24 August 1993 Income Tax Severed Letter 9320295 - 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.

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.

                                           5-932029
XXXXXXXXXX                                 D. S. Delorey
                                           (613) 957-8953

Attention: XXXXXXXXXX

August 24, 1993

Dear Sirs:

This is in reply to your letter of June 16, 1993, concerning your Earned Deferred Leave Program (the "Program").

More particularly, you ask for a ruling on the XXXXXXXXXX proposal to alter the Program to allow for a 3-month minimum leave rather than the 6-month minimum leave presently provided for in the Program. The 3-month leave period would not be for the purposes of permitting full-time attendance of the employee at a designated educational institution. You state that the XXXXXXXXXX is thus requesting an exemption from the salary deferral arrangement rules even where the requirement in subparagraph 6801(a)(i) of the Income Tax Regulations (the "Regulations") is not met.

You also seek clarification of the tax implications where an employee takes his/her 12 months of leave in 3 equal periods of 4 months in each of 3 succeeding years, rather than all at once.

Our Comments

A "ruling" on the tax implications arising out of proposed changes to a particular plan is given by this Directorate only where the plan is the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2. We offer, however, the following general comments.

Where a deferred salary leave arrangement allows the employee to take a leave period of only 3 months and the leave is other than for the purpose of permitting the full- time attendance of the employee at a designated educational institution, the arrangement will not meet the requirement in either of clause 6801(a)(i)(A) or (B) of the Regulations. The arrangement would thus not be a prescribed plan or arrangement for the purpose of paragraph (l) of the definition of "salary deferral arrangement" in subsection 248(1) of the Income Tax Act, with the result that the deferred amounts would be included in income for the year in which they are deferred. Revenue Canada does not have the authority to grant the requested exemption from the salary deferral arrangement rules. This would require a change in the law. Recommending changes to the law is the responsibility of the Department of Finance.

Where a deferred salary leave arrangement provided for a 12- month leave of absence and it is subsequently determined for good reason that the intended leave can be taken only in 3 equal leaves of 4 consecutive months over 3 succeeding years, taking the 3 equal leaves would be acceptable provided each leave was taken for the purpose of attending full time at a designated educational institution and the last 4-month leave began no later than 6 years after the commencement of the deferral period.

Our comments are an expression of opinion only and are not binding on the Department as explained in paragraph 21 of Information Circular 70-6R2. We trust, however, that they are of assistance.

Yours truly,

for Director Financial Industries Division Rulings Directorate

HAA 7680-4-2