20 April 1995 External T.I. 9510765 - 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 early retirement or termination results in a penalty to employee in respect of early termination from a deferred salary leave plan

Position TAKEN:

no

Reasons FOR POSITION TAKEN:

Regulation 6801(a) requires satisfaction of a number of conditions as time arrangement is entered into; subsequent inability to satisfy a condition does not result in penalty, but will result in taxation in year it is known that condition cannot be satisfied.

Public Service Employment Adjustment Group
Human Resources Development Division
Human Resources Policy Branch				5-951076
5th Floor, West Tower 					M.P. Baldwin
300 Laurier Avenue West
Ottawa, Ontario
K1A 0R5

Attention: Suzanne Cardinal
Policy Analyst

April 20, 1995

Dear Sirs:

Re: Deferred Salary Leave Plan

This is in reply to your facsimile of April 19, 1995 in which you request a technical interpretation on the taxation of funds received from a deferred salary leave plan (DSLP) as described in paragraph 6801(a) of the Income Tax Regulations (the "Regulations") when the plan participant does not return to work as required.

It is the Department's position that as long as all the conditions contained in paragraph 6801(a) of the Regulations were satisfied at the time the arrangement under the DSLP was initiated, an employee will not be subject to reassessment at the time participation in the DSLP is terminated in respect of employment income deferred under the DSLP. Although there would be no reassessment respecting prior years, the deferred amounts and any interest accrued but not paid on the deferred amounts will be taxed as employment income in the hands of the employee in the year that the employee or employer is unable to satisfy one or more of these conditions. For example, at the time an employee knows that a leave of absence will not be taken, or at the time the employee knows he or she will be unable to return to the employer for a period of time equal to the period of leave of absence, the deferred amounts and unpaid interest are required to be paid out of the DSLP to the employee and are taxable as employment income in that year.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch