15 November 1999 External T.I. 9927845 - 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: Does plan satisfy Regulation 6801

Position: No

Reasons: several provisions missing or not clearly stated

XXXXXXXXXX 		992784
W. C. Harding
Attention:  XXXXXXXXXX 

November 15, 1999

Dear Sirs:

Re: Deferred Salary Leave Plan (DSLP)

This is in reply to your letter of July 5, 1999, in which you asked for our approval of your proposed DSLP as submitted with your letter.

As discussed during our telephone conversation of November 8, 1999 (XXXXXXXXXX/Harding) A DSLP does not have to be approved by the Canada Customs and Revenue Agency (the "CCRA" - formerly Revenue Canada) in order for it to comply with the provisions of section 6801 of the Income Tax Regulations (the "Regulations"). However, a confirmation that your plan does satisfy these provisions can be obtained in the form of an advance income tax ruling if you so desire and if a request for it is submitted in the manner set out in Information Circular 70-6R2. A copy of this Information Circular is available on the internet at http://www.ccra-adrc.gc.ca/E/pub/tp/706r3et/706r3e.txt.html.

While we can not issue an advance tax ruling at this time, we have reviewed your plan and are of the opinion that it will be a prescribed plan under paragraph 6801(a) of the Regulations provided it is amended as discussed during our telephone conversation and explained below. Please note however that these are only statements of opinion on the specifics of your proposed plan (the "Plan") and as such are not binding on the CCRA.

Our review of the Plan indicates that there are a number of deficiencies which should be amended to ensure that it complies with paragraph 6801(a) of the Income Tax Regulations. In particular:

1. For greater clarity, certain provisions of the Plan that provide for the postponement or deferral of the leave of absence should be amended to conform with clause 6801(a)(i) of the Regulations and clearly indicate that a leave of absence must commence immediately after a period (in this letter referred to as the "deferral period") not exceeding 6 years after the date on which the deferrals for the leave of absence commence;

2. For greater clarity, and to comply with clause 6801(a)(vi) of the Regulations, the Plan should include a provision that, subject to the provisions for the payment of interest on an annual basis, all amounts held for the employee's benefit under the arrangement shall be paid to the employee out of or under the arrangement no later than the end of the first taxation year (generally the calendar year) that commences after the end of the deferral period; and

3 Paragraph XXXXXXXXXX of your Plan (which provides for the annual reporting of interest earned under the terms of the Plan during the deferral period and the leave of absence and, in particular, provides in part for the payment of interest accrued under the plan on the last "pay day" of each calendar year) should be amended as we discussed, to provide for the annual payment in each calendar year, of all interest earned in the year. The payment of interest on the last pay day in each December may not be sufficient to ensure the Plan complies with the regulation. Paragraph 6801(a)(iv) of the Regulations reads as follows:

"(iv) the arrangement provides that the amounts deferred in respect of the employee under the arrangement

(A) are held by or for the account of a trust governed by a plan or arrangement that is an employee benefit plan within the meaning of the definition thereof in subsection 248(1) of the Act, and provides that the amount that may reasonably be considered to be the income of the trust for a taxation year that has been earned by it for the benefit of the employee shall be paid in the year to the employee, or

(B) are held by or for the account of any person other than a trust referred to in clause (A), and provides that the amount in respect of interest or other additional amounts that may reasonably be considered to have accrued to or for the benefit of the employee to the end of a taxation year shall be paid in the year to the employee".

If the Plan is amended as discussed above, it is our opinion that it will meet the requirements of paragraph 6801(a) of the Income Tax Regulations.

For your information, our published Advance Tax Ruling ATR-39 which describes a DSLP that complies with the requirements of section 6801 of the Regulations is also available to you on the internet at http://www.ccra-adrc.gc.ca/E/pub/tp/eatr39w/atr-39.e.html.

Yours truly,

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

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