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:
Deferred salary leave plan in compliance with Reg. 6801
Position TAKEN:
yes, with minor changes
Reasons FOR POSITION TAKEN:
5-941369
XXXXXXXXXX D. Duff
August 12, 1994
Dear XXXXXXXXXX:
Re: Deferred Salary Leave Plan
This is in response to your letter of May 19, 1994, requesting us to review the deferred salary leave plan ("Plan") described therein to ensure it complies with the applicable regulations.
Paragraph XXXXXXXXXX of your plan refers to a ruling from the Department regarding your proposed Plan. We would like to point out that this is not an advance income tax ruling on your proposed Plan and is not binding on the Department. Also, there is no requirement to have the Plan reviewed by the Department prior to implementing it. Provided the Plan meets the requirements of paragraph 6801(a) of the Income Tax Regulations (the "Regulations") the participants will not be required to include the deferred amounts in income until they are received. We have reviewed your plan and have the following comments:
1.Subparagraph 6801(a)(i) of the Regulations states that the plan is to fund a leave of absence and is not to provide benefits on retirement. For greater certainty you might want to include this latter requirement in your Plan.
2.Paragraph XXXXXXXXXX of your Plan should also state that the income earned on the deferred amounts is income from employment and will be reported on a T4.
3.Paragraph XXXXXXXXXX should also prohibit the employee from receiving any salary or wages from a person not dealing at arm's length with the employer.
4.Paragraph XXXXXXXXXX of your Plan should read "...not later than the end of the first taxation year commencing after the expiry ..." to comply with Regulation 6801(a).
5.Paragraph XXXXXXXXXX states that deductions will be based on 100% of salary in the years preceding the leave. We are unsure from this statement whether you intend to treat the full salary earned as income during this period or were going to do so only until the Department ruled on your Plan. As stated above, this is not a ruling and there is no requirement to get a ruling or other approval from the Department regarding the Plan. If the Plan meets the requirements of paragraph 6801(a) of the Regulations the participants cannot be required to include the deferred amounts in income during the deferral period regardless of whether the Department has ruled or otherwise approved the Plan.
In our opinion, after the aforementioned adjustments are made, the Plan will meet the requirements of paragraph 6801(a) of the Regulations.
In addition we would like to point out the Department's position regarding Canada Pension Plan ("CPP") contributions and unemployment insurance ("UI") premiums. It is the Department's position that CPP contributions 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. If further information is required 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
It is 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.
As stated above, this letter is not an advance income tax ruling but is a statement of opinion on the specifics of your Plan and it is not binding on the Department. We trust, however, that our comments are of assistance.
Yours truly,
for Director
Financial Industries Division
Rulings Directorate
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