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 an employee make (after-tax) contributions to a deferred salary leave plan arrangement during the deferral period? Where the arrangement pays an amount that is a percentage of the employee's normal salary during the period of the leave of absence, is the test in clause 6801(a)(iii)(A) met, notwithstanding that the deferred amounts would not appear to be sufficient to fund the amounts paid during the leave of absence period?
Position: Nothing in paragraph 6801(a) precludes employee contributions. The arrangement meets the 2nd formula test in clause 6801(a)(iii)(A).
Reasons: Wording of the provision and previous interpretations on employee contributions.
XXXXXXXXXX 990720
Attention: XXXXXXXXXX
XXXXXXXXXX, 1999
Dear Sirs:
Re: Advance Income Tax Ruling
XXXXXXXXXX
XXXXXXXXXX
This is in reply to your letter dated XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above-noted taxpayers. We also acknowledge the information provided during our various telephone conversations (XXXXXXXXXX).
Our understanding of the facts and proposed transactions is as follows:
Facts
1. XXXXXXXXXX is a post-secondary educational institution located in XXXXXXXXXX tax account number is XXXXXXXXXX is located within the area served by the XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Tax Centre.
2. All academic staff members employed by XXXXXXXXXX are represented by XXXXXXXXXX in their dealings with XXXXXXXXXX. The current collective agreement (the "Collective Agreement") between XXXXXXXXXX and XXXXXXXXXX applies for the period XXXXXXXXXX. Section XXXXXXXXXX of the Collective Agreement, in part, states:
"XXXXXXXXXX"
3. The XXXXXXXXXX (the "Original Plan") was established by XXXXXXXXXX in XXXXXXXXXX. Reference to the Plan first appeared in the Collective Agreement between XXXXXXXXXX and XXXXXXXXXX in XXXXXXXXXX. There have been no participants in the Original Plan since XXXXXXXXXX.
4. XXXXXXXXXX faculty members have applied for participation in the Original Plan. There is some concern that the Original Plan may not satisfy all of the conditions found in paragraph 6801(a) of the Income Tax Regulations (the "Regulations").
Proposed Transactions
5. XXXXXXXXXX proposes to reinstate the Original Plan in an amended form (the "Amended Plan"). The principal features of the Amended Plan will be as follows:
(a) Any full-time permanent employee designated as academic staff of XXXXXXXXXX may apply to participate in the Amended Plan. XXXXXXXXXX will review all applications and it may grant up to a total of XXXXXXXXXX leaves for each year. Where an application has been approved by XXXXXXXXXX, the employee (hereinafter referred to as the "Participant") and a Human Resources representative, on behalf of XXXXXXXXXX, will sign an agreement regarding the Participant's involvement in the Amended Plan.
(b) The term of a leave under the Amended Plan will be a twelve month period from September 1 of one academic year until August 31 of the following year (the "Release Period"). The Release Period may be postponed for one year by XXXXXXXXXX for operational reasons. Under no circumstances will the Release Period commence after a period that is more than 6 years after the date on which the deferrals for the Release Period commence.
(c) The contributory period will normally be a period of 48 months immediately preceding the Release Period (the "Contributory Period"). During the Contributory Period, XXXXXXXXXX will withhold XXXXXXXXXX% of the Participant's gross monthly salary (excluding Acting Pay, Overtime Pay, V Modifier or Overload Pay) (the "Withheld Amounts") and credit such Withheld Amounts to a notional account (the "Notional Account") maintained on behalf of the particular Participant. XXXXXXXXXX will retain all of the Withheld Amounts (collectively referred to as the "Fund") and invest these Withheld Amounts. The income earned on the Withheld Amounts and the Additional Contributions (defined herein) in each year will be allocated proportionately to each of the Participants (the proportion will be based on the Participant's Notional Account relative to the aggregate of all of the Participants' Notional Accounts) and paid to the Participants as employment income on December 31 of the particular year. Each Participant will be required to make additional annual contributions to XXXXXXXXXX equal to the investment income allocated and paid to the Participant (the "Additional Contributions") which will also be credited to the Participant's Notional Account.
(d) During the Release Period, XXXXXXXXXX will pay the Participant, from the Fund, an amount in equal monthly installments, equivalent to XXXXXXXXXX of the Participant's gross monthly salary in effect on the last working day prior to the Release Period, net of any applicable withholdings. The Participant will not receive any salary or wages from XXXXXXXXXX or from another person or partnership with whom XXXXXXXXXX does not deal at arm's length, other than the amounts provided for herein.
(e) During the Release Period, the Participant will be entitled to apply to maintain benefit coverage as specified in sections 29, 30, 32 and 33 of the Collective Agreement.
(f) The following special circumstances are dealt with as follows:
(i) if a Participant dies during the Contributory Period or the Release Period, XXXXXXXXXX will pay to the Participant's beneficiary or his or her estate the balance credited to the Participant's Notional Account in the Fund plus interest within thirty days of being notified of the Participant's death; and
(ii) if a Participant encounters financial difficulties because of circumstances beyond his or her control, the Participant may apply to XXXXXXXXXX for release from his or her participation in the Amended Plan. If the application is approved by XXXXXXXXXX, the Participant will be released from the agreement and paid the balance credited to the Participant's Notional Account plus interest within thirty days.
(g) The Participant agrees to return to work after the Release period for a period at least equal to the Release Period.
Purpose of the Proposed Transactions
6. The purpose of the proposed transactions is to ensure that XXXXXXXXXX satisfies its obligations under section XXXXXXXXXX of the Collective Agreement and that the Amended Plan satisfies the conditions in paragraph 6801(a) of the Regulations.
7. To the best of your knowledge and the knowledge of XXXXXXXXXX, none of the issues involved in this request for an advance income tax ruling:
(a) is in an earlier return of XXXXXXXXXX or of a person related to XXXXXXXXXX;
(b) is being considered by a tax services office or taxation centre in connection with a previously filed return of XXXXXXXXXX or of a person related to XXXXXXXXXX;
(c) is under objection by XXXXXXXXXX or by a person related to XXXXXXXXXX;
(d) is before the courts; or
(e) is the subject of a ruling previously issued by the Income Tax Rulings and Interpretations Directorate.
Rulings Given
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, and provided that the terms of the Amended Plan are as described in paragraph 5 above, we rule as follows:
A. The Amended Plan will be a prescribed plan or arrangement as described in paragraph 6801(a) of the Regulations and will therefore be exempted from the definition of a "salary deferral arrangement" as contained in subsection 248(1) of the Income Tax Act (the "Act").
B. The Amended Plan will not constitute a trust governed by an employee benefit plan. The expression "employee benefit plan" has the meaning assigned in subsection 248(1) of the Act.
The above rulings, which are based on the Act in its present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996, and are binding on Revenue Canada provided that the Amended Plan is implemented within six months of the date of this letter.
We are of the view that any amounts received by a Participant under the Amended Plan, including any Additional Contributions described in paragraph 5(c) above, will be received as employment income by the Participant.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
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