1 February 1996 External T.I. 9531935 - TERMINATED DSLP, RETIRING ALLOWANCE

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:

If an individual has received a payment on retiring in recognition of long service, would the receipt of deferred salary as a result of the termination of the individual's involvement in a salary deferred leave plan result in the payment not qualifying as a retiring allowance?

Position:

No

Reasons:

The payment of deferred salary by a custodian of a DSLP would not result in the individual being employed subsequent to retirement, therefore, the payment on retirement would qualify as a retiring allowance.

	                             		953193

XXXXXXXXXX M.P. Sarazin

February 1, 1996

Dear Sir\Madam:

This is in reply to your facsimile dated December 6, 1995, wherein you requested our comments as to whether a payment in recognition of long service received by an individual on retirement would qualify as a retiring allowance, within the meaning assigned by subsection 248(1) of the Income Tax Act (the "Act"), where the individual subsequently receives a deferred salary payment from the custodian or trustee of a deferred salary leave plan (the "Plan") described in paragraph 6801(a) of the Income Tax Regulations (the "Regulations") as a result of the termination of the individual's participation in the Plan.

Comments

In your letter you have outlined what appears to be an actual fact situation related to a past transaction. The review of such transactions falls within the responsibility of Tax Service offices and it is the practice of this Department not to comment on such transactions when the identities of the taxpayers are not known. However, we can provide you with the following general comments which we hope will be of assistance.

In any case, it is a question of fact as to whether an employee has retired and received an amount in recognition of long service on or after such retirement.

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 deferred salary leave plan was initiated, an employee will not be subject to reassessment at the time participation in the plan is terminated in respect of employment income deferred under such plan. 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. Consequently, at the time an employee knows that a leave of absence will not be taken, the deferred amounts and unpaid interest are required to be paid out of the plan and are taxable as employment income in that year.

We are of the view that if, as a result of the termination of an individual's involvement in a Plan, an individual receives a payment from a custodian or trustee of the Plan which is taxed as employment income, this would not, in and by itself, result in the individual being considered employed by the employer on the payment date for purposes of the Act. Therefore, an individual may receive an amount on or after retirement in recognition of long service which would qualify as a retiring allowance even though the individual will receive an amount from a custodian or trustee of a Plan as a result of the termination of the individual's involvement in the Plan.

We trust the above comments will be of assistance to you.

Yours truly,

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