29 March 1994 External T.I. 9406825 - XXXXXXXXXX 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.

Principal Issues:

Whether a dslp meets the requirements of Regulation 6801(a).

Position TAKEN:

No, changes required.

Reasons FOR POSITION TAKEN:

Routine

XXXXXXXXXX 940682

Attention: XXXXXXXXXX

March 29, 1994

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

This is in reply to your letter of February 23, 1994, enclosing a copy of the above-noted Plan and asking us to verify if it complies with the Income Tax Regulations (the "Regulations").

Enclosed for your information is a copy of ATR-39 on the subject of Deferred Salary Leave Plans. We will refer to the paragraphs in this publication when commenting on amendments which should be made to your Plan.

Paragraph 6801(a) of the Regulations requires that a leave of absence be for a minimum of six consecutive months. The Plan states in paragraph XXXXXXXXXX that a leave of absence will normally be a twelve month school year, but does not specify a minimum. Please refer to the last sentence in the definition of "Leave of Absence" in ATR-39.

A leave of absence must commence immediately after the deferral period (for example, refer to paragraphs 3.1 and 3.6 and the last two sentences in paragraph 3.4 of ATR-39). The Plan should include this requirement where necessary.

A deferral period must not be longer than six years in duration. Paragraph XXXXXXXXXX of the Plan should be amended in this respect. (See ATR-39, paragraph 2.1 and the last sentence of paragraph 3.2).

The maximum amount of salary that can be deferred is 331/3% of the participant's salary in the year (see paragraph 2.2 of ATR-39).

The Plan should contain a statement that during the leave of absence the participant will receive no amounts from the employer or any persons with whom the employer does not deal at arm's length other than the deferred amount and the usual fringe benefits (see clause at the top of page 6 of ATR-39).

The income earned on the deferred amounts must be paid to the participant in each year and is considered employment income which must be included on the participant's T4 slip. Paragraph XXXXXXXXXX of the Plan should be amended accordingly. See paragraphs 2.3 and 7.3 of ATR-39.

One of the requirements of a deferred salary leave plan is that it is not established to provide benefits after retirement. Therefore the Regulations require that the employee return to employment after the leave of absence for a period of time equal to the period of leave (see paragraph 6.1 of ATR-39). Paragraph XXXXXXXXXX of your Plan should be amended to ensure that the participant's failure to notify the Board of an intention to return to employment is deemed to be confirmation of employment and not the reverse.

The foregoing comments are an expression of opinion only and are not binding on the Department. We trust, however, that they are helpful.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate