10 August 1998 External T.I. 9812605 - DSLP FOR TERM EMPLOYEES

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

Can a term employee participate in a Deferred Salary Leave Plan (DSLP)?

Position:

Possibly.

Reasons:

It will depend on the terms of the contract of employment. It would generally be inappropriate or meaningless to allow participation if the employment is terminated at the conclusion of each term. However in some circumstances where consecutive terms of employment are automatically extended it may be appropriate.

XXXXXXXXXX 		981260
W. C. Harding

Attention:  XXXXXXXXXX 

August 10, 1998

Dear Sirs:

Re: Participation of Term Employees in a Deferred Salary Leave Plan (“DSLP”)

This is in reply to your letter of May 5, 1998, and our telephone conversation of June 30, 1998, (XXXXXXXXXX-Harding) in respect of the participation of certain occupational groups in DSLPs that meet the provisions of paragraph 6801(a) of the Income Tax Regulations.

As discussed during our telephone conversation, we cannot address specific factual situations in a letter of opinion but can provide general comments that may or may not be applicable to your situation. If you require further clarification in respect of proposed transactions these may be provided if they are requested in the form of a request for an advance income tax ruling and the request is made in the manner set out in the Department's Information Circular 70-6R3, a copy of which is enclosed.

Also as discussed during our conversation, we cannot comment on the application of the Employment Insurance Act with respect to the receipt of benefits by term employees.

In general a DSLP is created when an employee and an employer enter into a written arrangement for the purposes of permitting the employee to fund, through salary or wage deferrals, a leave of absence from employment. In our opinion it would generally be unacceptable to treat an arrangement as a DSLP where it provides funding for a leave of absence that is to occur subsequent to the term of employment and in particular, where a term of employment will not be automatically renewed. On the other hand ,where an employee’s employment will be maintained through a series of term contracts and it is reasonable to assume these will be renewed throughout for the full term of the arrangement, then treatment of the arrangement as a DSLP should be acceptable.

During our conversation we also discussed situations where term employees are required to work for periods of 10 months out of every 12. Treatment of arrangements covering these kind of employment situations will depend on the specific terms of the employment contract. For example, if the employment contract is for 10 months and the employee is not employed by the employer for the remaining two months, of each year we would have significant difficulty accepting the arrangement is a qualified DSLP. However, if the contract is for a 12 month period and the employee only has to report for duty during 10 months, then it would be appropriate to accept an arrangement as a qualified DSLP as discussed above.

We trust these comments will be of assistance to you.

Yours truly,

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