8 March 1994 External T.I. 9404205 - HAA 7680-4-2 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. file #E940420

Principal Issues: Does plan meet Regulation 6801

Position TAKEN: No

Reasons FOR POSITION TAKEN: Rotine analysis.

LEGAL:

FINANCE OPINION:

JURISPRUDENCE:

RCT PUBLICATIONS: ATR 39

HAA NUMBER: 7680-4-2

XXXXXXXXXX 5-940420

Attention: XXXXXXXXXX

March 8, 1994

Dear Sirs:

Re: Deferred Salary Leave Plan ("DSLP")

This is in reply to your letter of December 14, 1994, concerning your company's DSLP.

Since the subject of your enquiry relates to a factual proposal, we are unable to provide you with any specific binding comments at this time. Confirmations of the tax implications in respect of particular proposals may only be provided by this Directorate where they are the subject matter of an advance income tax ruling request submitted in the manner set out in the Department's Information Circular 70-6R2 (enclosed).

While we are unable to address your specific situation, we can offer the following general comments on certain elements of your plan:

a plan must comply with the requirements of section 6801 of the Income Tax Regulations (the "Regulations") in order for it to qualify as a DSLP. However, there is no requirement for a plan to be approved by the Department before it can be implemented;

article XXXXXXXXXX of your proposed plan should contain the same limitation as found in the last sentence of Article XXXXXXXXXX

in Article XXXXXXXXXX it appears the word "pension" should be "person"; and

for greater certainty, the plan might indicate that all amounts paid as described in article XXXXXXXXXX must be treated as employment income for purposes of the Canada Pension Plan ("CPP") and the Unemployment Insurance ("UIC") as well as the Income Tax Act. In consequence, the amounts, when paid, must be included on the employee's T4 supplementary and tax withholdings and remittances must be made by the employer.

To clarify, the following comments may be of assistance.

Canada Pension Plan

It is the Department's position that CPP premiums are 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 a 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, 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 a plan 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 a 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)952-5422 or to the following address:

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

Unemployment Insurance

It is the Department's position that UIC 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.

In our view an advance income tax ruling should not be necessary if the plan in its final form takes into account our comments. However, our comments are based on our understanding of the law as it applies in general and may or may not apply to the circumstances of a particular case. They do not form an advance income tax ruling and they are not binding on the Department. As noted above, should you desire a ruling, we will be pleased to review your plan upon its finalization and issue a ruling thereon.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate