26 October 1993 External T.I. 9329005 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.

XXXXXXXXXX 

Attention:  XXXXXXXXXX

Dear Sirs:

RE:  Deferred Salary Leave Plan ("DSLP)

This is in reply to your facsimile of September 29, 1993 in which you requested whether or not an attached ruling with respect to Canada Pension Plan ("CPP") and Unemployment Insurance ("UI) Premiums was still in effect. The attached ruling you refer to was addressed to a third party and we can not comment on correspondence to third parties. However, we can provide you with the following general comments on the Department's position with respect to CPP and UI premiums in the context of DSLPs.

It is the Department's position that CPP premiums are to be based on the employee's salary net of the deferred amounts during the period of deferral 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 DSLP 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, while 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 employees under the DSLP 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 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)952-8179 or to the following address:

Coverage Policy and Legislation Section Source Deduction Division Revenue Canada Taxation 875 Heron Road Ottawa, Ontario K1A 0L8

It is also the Department's position that UI premiums are to be based on the participant's gross salary before deferrals during the period of deferral and no premiums are to be withheld from the deferred amounts when paid to the participant during the leave period.

We have enclosed for your information a copy of the Income Tax Ruling ATR-39 which deals with DSLPs.

We trust that the above comments will be of assistance to you.

Yours truly,

for DirectorFinancial Industries DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch