19 August 1998 External T.I. 9816405 - DSLP, RETIRE, NOT RETURN

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 decision to participate in early retirement program and not return to work could affect DSLP status?

Position: Yes.

Reasons: 6801(a) conditions no longer met so deferred amounts become taxable.

XXXXXXXXXX 							981640
M. P. Sarazin

August 18 1998

Dear Sir:

Re: Deferred Salary Leave Plan

This is in reply to your letter dated June 23, 1998, wherein you requested an exemption from having to return to work as required under the terms of your deferred salary leave plan (the “DSLP”). You would like to retire under an early retirement incentive program being offered by your employer but you do not want to include the deferred salary under the DSLP in your income until it is scheduled to be received.

Comments

It appears that the opinion you seek relates to specific proposed transactions and, therefore, we bring to your attention Information Circular 70-6R3 dated December 30, 1996, issued by Revenue Canada. Confirmation of tax consequences with respect to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. However, we are able to provide you with the following general comments.

Where a DSLP meets the conditions in paragraph 6801(a) of the Income Tax Regulations (the “Regulations”), the amounts deferred under the DSLP will be exempt from being considered a salary deferral arrangement and will only be included in a participant’s income as the amounts are eventually received under the terms of the plan. Where a condition in paragraph 6801(a) is no longer complied with, the participant would be considered to have terminated or withdrawn his or her participation in the plan. The conditions include a requirement that the employee agree to return to his or her regular employment for a period after the leave of absence at least equal to the period of leave.

Where, for example, a participant in a DSLP elects to participate in an early retirement program offered by the employer and, as a result, a condition in paragraph 6801(a) of the Regulations will not be complied with, the participant will be considered to have withdrawn his or her participation in the plan and the deferred amounts plus any unpaid income earned thereon will become taxable at that time. We note that there is no provision in the Income Tax Act or Regulations that will allow the Department to exempt you, on a compassionate or other basis, from including the deferred amounts in your income at that time.

We trust the above 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