25 May 1994 External T.I. 9411045 - 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:

Review of deferred salary leave plan.

Position TAKEN:

Changes required.

Reasons FOR POSITION TAKEN:

Routine

XXXXXXXXXX 941104

Attention: XXXXXXXXXX

May 25, 1994

Dear Sirs:

Re: XXXXXXXXXX Deferred Salary Leave Plan

This is in reply to your letter of April 20, 1994, in which you ask us to approve the above-noted plan. We have reviewed the terms of your plan and provide the following comments. Please note that it is not necessary to obtain the Department's approval prior to implementing your deferred salary leave plan.

In order to meet the requirements of the Income Tax Regulations (the "Regulations") a deferred salary leave plan must provide that the period during which salary deferrals take place (the "deferral period") must not be longer than six years. In addition, the maximum amount that may be deferred each year cannot exceed 33 1/3% of the employee's salary and wages. The word "year" as used in these contexts refers to the calendar year. To ensure conformity with the Regulations, your plan should be amended so that references to "school year" or "year" are changed to "calendar year" in the following clauses:

XXXXXXXXXX

should be amended to ensure that no more than 33 1/3% of current compensation is deferred in each calendar year. It is not necessary to count the leave of absence year in the formula set out in XXXXXXXXXX. Note that the leave of absence year need not coincide with the calendar year.

In order to ensure that the deferral period not exceed six calendar years in length, appropriate amendments are required for XXXXXXXXXX.

Lastly, a deferred salary leave plan is not considered an "investment contract" by virtue of subparagraph 12(11)(a)(i) of the Income Tax Act. Interest accruing under such a plan is considered employment income and must be paid to the employee by December 31 of the year in which it is earned and should be reported on the employee's T4 supplementary. XXXXXXXXXX should be changed accordingly.

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

Yours truly,

for Director
Financial Industries Division
Rulings Directorate