3 March 1994 External T.I. 9404165 - XXXXXXXXXX DSLP

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.

RULINGS DIRECTORATE
CORRESPONDENCE SUMMARY

DOCUMENT TYPE:

Opinion

Principal Issues:

Whether deferred salary leave plan meets requirements of Regulation 6801(a).

Position TAKEN:

Routine

Reasons FOR POSITION TAKEN:

Routine

LEGAL:

FINANCE OPINION:

JURISPRUDENCE:

RCT PUBLICATIONS:

ATR-39

HAA NUMBER:

7680-4-2

XXXXXXXXXX 940416

Attention: XXXXXXXXXX

March 3, 1994

Re: Deferred Salary Leave Plan (the "Plan")

This is in reply to your letter of February 14, 1994, enclosing a copy of the above-noted Plan and requesting us to review it to ensure it complies with the Income Tax Regulations (the "Regulations"). Enclosed is a copy of Income Tax Ruling ATR-39 on the topic of deferred salary leave plans for your information. We note the following problems with the Plan.

Paragraph 6801(a) of the Regulations requires that a deferred salary leave plan provide for a leave of absence of not less than six consecutive months. In clause XXXXXXXXXX it implies that the leave will be for a fiscal year or portion thereof. There is no requirement, however, that the leave be at least 6 consecutive months. (See definition of "Leave of Absence" in 1 of ATR-39.)

The Regulation also requires that the deferral period be no longer than six years in length. In clause XXXXXXXXXX the participant may suspend participation in the Plan for 12 months. This right should be subject to the qualification that the suspension will not result in the commencement of the leave of absence being postponed beyond the date originally scheduled for it. (See 5.2 of ATR-39.) Alternatively, your Plan may provide that the Deferral Period together with the period of suspension will not exceed six years in length.

Clause 6801(a)(iii)(A) of the Regulations states that a participant may not receive during the leave of absence any remuneration from the employer "or any other person or partnership with whom the employer does not deal with at arm's length" except the deferred compensation and the usual fringe benefits. Clause XXXXXXXXXX would be acceptable if the phrase XXXXXXXXXX were deleted since this phrase restricts the payments to those made by the XXXXXXXXXX (See 3.3 of ATR-39.)

Finally, interest income earned on the deferred compensation is considered to be employment income and must be reported as such by the XXXXXXXXXX (See 7.3 of ATR-39.) Clause XXXXXXXXXX incorrectly identifies the amounts in question since a deferred salary leave plan which meets the requirements of paragraph 6801(a) of the Regulations is excepted from the definition of a "debt obligation" in subparagraph 12(11)(a)(i) of the Income Tax Act.

The Plan does not refer to Canada Pension Plan contributions or to Unemployment Insurance premuims but we draw your attention to the Editor's Note in ATR-39 concerning these topics. It is not required that these matters be referred to in your Plan.

Although these comments are an expression of opinion only and not binding on the Department, we trust they are of assistance.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate