28 July 1994 External T.I. 9416135 - PRE 86 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 returning to employment for one semester and then retiring is sufficient to satisfy requirements of Reg. 6801(b).

Position TAKEN:

Doesn't prevent plan from satisfying conditions but is not sufficient.

Reasons FOR POSITION TAKEN:

Not enough info provided.

XXXXXXXXXX		941613

Attention: XXXXXXXXXX

July 28, 1994

Dear Sirs:

Re: 4/5 Leave Plan

This is in reply to your letter of May 15, 1994, which was forwarded to us by the Sudbury Taxation Centre. You ask whether a return to employment from February through June, 1996, is sufficient for purposes of the Income Tax Act after an employee has taken a leave of absence spanning two semesters (i.e., February through June, 1995 and September, 1995 through January, 1996). The employee will then retire on August 31, 1996. You advise that the leave agreement was entered into before 1986.

A deferred salary leave plan established before July 28, 1986, complies with the Income Tax Act if it meets the conditions of paragraph 6801(b) of the Income Tax Regulations. It must be reasonable to conclude from a review of all the circumstances that the agreement was not established to provide benefits on or after retirement and, furthermore, that the main purpose of the agreement was to fund, through salary deferrals, a leave of absence from the employment. Lastly, the salary deferrals must have commenced before 1987.

Although we cannot confirm that the situation and agreement you have described comply with these conditions, there is nothing in the facts you have provided which would prevent the arrangement from satisfying the Income Tax Regulations.

The Department's position concerning actual or completed transactions can be obtained from your local district taxation office. The Rulings Directorate will, for a fee, issue an advance income tax ruling concerning proposed transactions which will bind the Department and confirm the tax consequences of those transactions. The foregoing comments are an expression of opinion only and, therefore, are not binding on the Department. However, we trust that they are helpful.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate