26 June 1996 External T.I. 9611065 - PAYMENT OF DEFERRED AMOUNTS UNDER DSLP

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 deferred amounts in 6801(a) plan must be paid out in the year a participant withdraws or by December 31 of following year.

Position:

No - within a reasonable period of time.

Reasons:

Once participant withdraws, deferred amounts are not sheltered in a "prescribed plan" under the "salary deferral arrangement" definition in 248(1) and any undue deferral of payment to the next calendar year could be for the purpose of deferring tax.

		961106
XXXXXXXXXX	P. Spice

Attention: XXXXXXXXXX

June 26, 1996

Re: Withdrawal from Self-Funded Leave Plan

This is in reply to your letter of March 13, 1996, in which you ask us to reconcile statements made in correspondence from this directorate and from the former Source Deductions Division (now the Trust Accounts Division). Copies of both our letter of December 16, 1991 (#5-912830) and the undated letter from the Source Deductions Division were enclosed for our review. In particular you ask whether deferred amounts held under a deferred salary leave plan as prescribed by paragraph 6801(a) of the Income Tax Regulations (the "Regulations") must be paid in the year a participant withdraws from the plan or by December 31 of the following year.

This will confirm that when a participant withdraws from a deferred salary leave plan by reason of the participant's death, termination of employment or transfer to an employer which does not participate in a similar plan, the deferred amounts must be paid to the participant in a reasonable period of time. Please refer to paragraphs 4.1 through 4.3 of the enclosed copy of ATR-39 (Deferred Salary Leave Plan) for a discussion of this requirement.

With respect to the statement in the letter from the Source Deductions Division, although payment may be made in the year the withdrawal occurs and therefore included in the employee's income in that year, if payment occurs within a reasonable time but in a subsequent taxation year, the income inclusion for the employee would be for the year the amount is received. There is no requirement that taxation occur in the year of withdrawal in the latter circumstances.

We apologize for any confusion our letter of December 16, 1991, may have caused and trust this helps to clarify our position.

Yours truly,

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

c.c.Barbara Larocque

Policy & Technical Services Section
Trust Accounts Division
Room 7000, Cumberland Place