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 ISSLES: Does their proposed deferred salary leave plan satisfy the conditions described in paragraph 6801(a) of the Regulations?
Position: No.
Reasons: Certain conditions in paragraph 6801(a) are not satisfied.
XXXXXXXXXX 991276
M. P. Sarazin
Attention: XXXXXXXXXX
August11, 1999
Dear Sirs:
Re: Proposed Deferred Salary Leave Plan
This is in reply to your letter dated May 12, 1998, in which you requested our comments on whether your proposed deferred salary leave plan ("DSLP") to be offered to the teachers of the XXXXXXXXXX complies with the provisions of paragraph 6801(a) of the Income Tax Regulations (the "Regulations").
Our review of the provisions of the DSLP indicates that there are some deficiencies which should be amended to ensure that the DSLP complies with the Regulations. We suggest that you consider our comments and that you refer to the enclosed copy of Income Tax Ruling ATR-39 (references to sample wording in ATR-39 follow each comment if available).
1. Based on the terms of the DSLP, it must be reasonable to conclude that the arrangement is not established to provide benefits to the employee on or after retirement but is established for the main purpose of permitting the employee to fund a leave of absence. Even though paragraph XXXXXXXXXX of the DSLP states that the leave period cannot be taken immediately before retirement, the provisions of paragraphs XXXXXXXXXX and XXXXXXXXXX would not prevent a participant from deferring salary and withdrawing from the plan immediately before retirement. Generally, the terms of the plan should not allow a participant to withdraw from the DSLP without the permission of the employer and this permission will only be granted under extenuating circumstances.(ATR-39, 4.2)
2. Paragraphs XXXXXXXXXX and XXXXXXXXXX of the DSLP require that the income earned on the deferred amounts be paid as interest income in January of the following taxation year. In order to comply with paragraph 6801(a) of the Regulations, the income earned on the deferred amount retained in respect of each participant in the DSLP in a taxation year has to be paid to the participant in that taxation year and the amount has to be paid and reported as employment income to the participant. (ATR-39, 2.3, 7.3)
3. Paragraphs XXXXXXXXXX and XXXXXXXXXX of the DSLP state that the participant will be guaranteed a position of employment after completing the leave of absence and the position cannot be for less time than the period of leave. In order to comply with paragraph 6801(a) of the Regulations, the DSLP must provide that the participant is to return to his or her regular employment with the employer or an employer that participates in the same or similar arrangement after the period of leave for a period that is no less than the period of the leave of absence. (ATR-39, 6.1) In our view, the current provisions of the DSLP does not make it clear that a participant is required to return to his or her regular employment.
4. Paragraphs XXXXXXXXXX and XXXXXXXXXX of the DSLP deal with payments out of the arrangement. There are no time limits established for such payments. In order to comply with paragraph 6801(a) of the Regulations, the DSLP must provide that all amounts held for the participant's benefit under the arrangement must be paid to the participant no later than the end of the first taxation year that commences after the end of the deferral period. (ATR-39, 3.2)
5. Paragraphs XXXXXXXXXX and XXXXXXXXXX of the DSLP refer to a trust for the benefit of the participant. We suggest that you amend paragraph XXXXXXXXXX of the DSLP to make it clear that an individual bank account will be set up in the name of the School Board in trust for each participant in the plan.
6. Paragraph XXXXXXXXXX of the DSLP refers to changes to the regulations of Revenue Canada. This reference is incorrect since Revenue Canada does not enact changes to the regulations. We suggest that you state that the DSLP is subject to any changes to the Income Tax Act and Regulations.
We note that all of these conditions have to be satisfied within the terms of the DSLP before the plan or arrangement will qualify as a deferred salary leave plan for purposes of paragraph 6801(a) of the Regulations.
We trust the above comments will be of assistance.
Yours truly,
Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1999
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1999
Email this Content