30 November 1995 Ruling 9625733 - 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: Routine 6801 plan

Position: Routine

Reasons: Routine

XXXXXXXXXX							3-962573
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1996

Dear Sirs:

Re: Advance Income Tax Ruling
XXXXXXXXXX
Deferred Salary Leave Plan ("DSLP")

This is in reply to your letters of XXXXXXXXXX, in which you requested an advance income tax ruling in respect of your proposed Prepaid Leave of Absence Plan (the "Plan").

Facts

XXXXXXXXXX (the "Employer") was incorporated in XXXXXXXXXX and continued under the Canadian Business Corporations Act. It is resident in Canada.

The Employer files its federal income tax returns with the XXXXXXXXXX Taxation Centre.

Proposed Transaction

The Employer proposes to implement the Plan as detailed in your submission. The significant details of the Plan which are relevant to this ruling request are as follow:

"Leave of Absence" means a minimum of a 3 consecutive month period and a maximum of a 12 consecutive month period for educational leaves or 6 consecutive months for all other leaves taken in accordance with the provisions of the Plan.

"Educational Leave" means a leave taken by a Member for the purpose of full time attendance at a designated educational institution as defined in subsection 118.6(1) of the Income Tax Act (the "Act").

"Deferral Period" means the number of years for which salary is deferred in accordance with article XXXXXXXXXX of the Plan including any periods referred to in Article XXXXXXXXXX of the Plan.

A "Member" is an eligible employee of the Employer who has completed a Memorandum of Agreement and has been approved for participation by the Employer.

Members will receive their salary less 10-25% of their base salary level net of bonuses, overtime or other sources of remuneration paid by the Employer for 4 consecutive years commencing from the first pay period immediately following the date the Memorandum of Agreement is signed.

The total amount of salary deferred by a Member in accordance with e. above and any other such arrangement for services rendered by the Member to the Employer cannot exceed 25% in any calendar year.

The deferred salary plus any interest thereon less any amounts paid under the terms of the Plan (the "Deferred Salary Amount") will be retained by the Employer and invested in interest bearing securities. The Employer will engage a third party administrator to manage the Deferred Salary Amount.

The Employer shall pay a Member the accrued interest on the Deferred Salary Amount on the following dates:

the December 31 occurring at the end of the calendar year in which the Member joined the Plan;

the December 31 occurring at the end of every subsequent calendar year while the Member is a participant in the Plan; and

the last day of the Leave of Absence or when the Employer makes a payment due to a withdrawal from the Plan or the death of the Member.

In no event will the Deferral Period end later than 36 months prior to the Member's scheduled or expected retirement date.

The Leave of Absence shall occur according to and be governed by the Memorandum of Agreement. The Leave of Absence shall commence immediately after the Deferral Period and on a date determined jointly by the Employer and the Member except that the Deferral Period shall not exceed six years after the date of signing of the Memorandum of Agreement.

The full Deferred Salary Amount will be paid to a Member no later than the end of the first taxation year of the Member that begins after the end of the Deferral Period.

In the event suitable working arrangements cannot be made to accommodate the Member's Leave of Absence on the date which is 4 years from the date of signing of the Memorandum of Agreement, the Employer may defer or delay the Leave of Absence. Under no circumstances will the delay or deferral exceed one year and the leave must be taken in the immediately following year. Failure of the Member to take the Leave of Absence at the re-appointed time will result in the Member's immediate withdrawal from the Plan. In no event will the delay or deferral of the Leave of Absence move the commencement of the Leave of Absence beyond the sixth year following the date of signing of the Memorandum of Agreement.

The Leave of Absence may, with the written consent of the Employer given not less than 6 months prior to the date on which the Leave of Absence is scheduled to commence, be postponed by one year. In no event will the postponement of the Leave of Absence move the commencement of the Leave of Absence beyond the sixth year following the date of signing of the Memorandum of Agreement.

During the Leave of Absence the Member will not accumulate or be entitled to

a) any wages or salary from the Employer or any person, partner or company associated with the Employer or not dealing at arms' length with the Employer; and

b) statutory holidays, maternity, parental, sick or other leaves.

The Employer will continue to pay its share of contributions under the Member's group insurance plan during the Leave of Absence and other reasonable fringe benefits may be provided during the Leave of Absence in accordance with any prevailing contractual documents.

XXXXXXXXXX

A Member who ceases to be employed by the Employer must withdraw from the plan. Within 60 days thereafter, the Employer will pay to the Member the Deferred Salary Amount including any outstanding accrued interest to the date of termination.

In extenuating circumstances, such as financial hardship, and with the written consent of the Employer, the Member may withdraw from the Plan upon giving not less than six months written notice to do so, prior to the scheduled commencement date of the Leave of Absence. The Employer will within 60 days thereafter pay to the Member the Deferred Salary Amount including any outstanding accrued interest to the date of termination.

In the event of the Member's death, the Employer will within 60 days of notification of death pay to the Member's estate the Deferred Salary Amount including any outstanding accrued interest to the date of death, subject to the Employer receiving the necessary clearances and proofs normally required for payments to estates.

Immediately after the Leave of Absence, a Member must resume regular employment with the Employer for a period that is not less than the duration of the Leave of Absence.

Interest paid to the Member under the terms of the Plan will be considered to be employment income for the purposes of the Income Tax Act (the "Act") and will be reported on a T4 Supplementary and be subject to tax withholding.

Purpose of the Proposes Transaction

The Plan is to allow eligible employees of the Employer to finance leaves of absence without compensation by deferring portions of their salary.

Additional Information

To the best of your knowledge, none of the issues involved in this ruling are being considered by a Tax Services Office or Taxation Centre in connection with a return already filed and none are under objection.

Rulings

Provided that the terms and conditions of the Plan are accurate, the above information constitutes complete disclosure of the relevant facts, and the Plan is implemented as proposed, we rule that:

A.the Plan will satisfy the requirements set out in paragraph 6801(a) of the Income Tax Regulations and will therefore be excluded from the definition of a "salary deferral arrangement" as that term is defined in subsection 248(1) of the Act; and

B.the Plan will not be a retirement compensation arrangement as defined in subsection 248(1) of the Act.

These rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R2 dated September 8, 1990 and the Special Release thereto dated September 30, 1992, issued by Revenue Canada, and are binding provided the Plan is implemented by XXXXXXXXXX.

Yours truly,

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

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