13 July 1994 Internal T.I. 9417416 - EARLY RETIREMENT IMPACT ON DSLP PARTICIPATION

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 early retirement results in a penalty to employee in respect of early termination from a deferred salary leave plan.

Position TAKEN:

No.

Reasons FOR POSITION TAKEN:

Regulation 6801(a) requires satisfaction of a number of conditions at time arrangement entered into; subsequent inability to satisfy a condition does not result in penalty, but will result in taxation in year it is known that condition cannot be satisfied.

Provincial and International Financial Industries
Relations Division Division
Mr. E.E. Campbell, Acting Director P. Spice
(613) 957-8953
Attention: Mr. Bruno Fioravanti
941741

XXXXXXXXXX
Effect of Early Retirement on Participants In a Deferred Salary Leave Plan (DSLP )

This is in reply to your memorandum of July 5, 1994, in which you ask for our comments concerning the withdrawal from a deferred salary leave plan upon retirement under the XXXXXXXXXX Early Retirement Incentive Plan (ERIP). The Province has asked you to confirm that the teachers who opt for early retirement would not be penalized in respect of the termination of their participation in a DSLP. You enclosed a copy of a letter of July 4, 1994, from the Province which provides further details concerning this matter.

So long as all the conditions contained in paragraph 6801(a) of the Income Tax Regulations were satisfied at the time the arrangement under the DSLP was initiated, an employee will not be subject to reassessment at the time participation in the DSLP is terminated in respect of employment income deferred under the DSLP. Although there would be no reassessment respecting prior years, the deferred amounts and any interest accrued but not paid on the deferred amounts will be taxed as employment income in the hands of the employee in the year that the employee or employer is unable to satisfy one or more of these conditions. For example, at the time an employee knows that a leave of absence will not be taken, or at the time the employee knows he or she will be unable to return to the employer for a period of time equal to the period of the leave of absence, the deferred amounts and unpaid interest are required to be paid out of the DSLP to the employee and are taxable as employment income in that year.

We trust these comments assist.

R.S. Biscaro
Acting Director General
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch