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.
Principal Issues: Why can a participant in a deferred salary leave plan not receive any income from an employer by working part time for the employer during a leave of absence ?
Position: The applicable regulations prevent the employee receiving income from the employer during the leave of absence.
Reasons: The regulations are written to ensure such plans continue to be used for their original purpose of funding a leave of absence from employment.
XXXXXXXXXX
Dear XXXXXXXXXX :
The office of the Honourable James M. Flaherty, Minister of Finance, forwarded to me a copy of your email, which I received on February 13, 2008, concerning the rules that apply to your four over five leave plan.
The Income Tax Act states that income from employment should usually be included in an employee's income in the year it is earned. To ensure this, there are special rules that apply when the payment of employment income is deferred from one year to another. However, these rules do not apply if the arrangement is a prescribed plan or arrangement under the Income Tax Regulations.
Four over five leave plans are designed to permit employees, with an employer's approval, to fund a leave of absence from employment by deferring a portion of their employment income for four years and receiving this amount in the fifth year during the leave of absence. A four over five plan will be considered a prescribed plan if it meets all of the conditions set out in the Regulations.
One of the conditions listed in the Regulations states that the employee cannot receive any salary or wages from the employer during the leave of absence other than the wages deferred under the arrangement and any reasonable fringe benefits that the employer usually pays to or on behalf of its employees. In essence, this rule is intended to ensure the plan continues to be used for its original purpose of funding a leave of absence from employment.
I trust that my comments address your request for verification.
Sincerely,
The Honourable Gordon O'Connor, P.C., M.P.
Wayne Harding
613-957-9769
February 26, 2008
2008-026883
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