28 March 2003 Ministerial Correspondence 2003-0005714 - DSLP RETIREMENT AFTER LEAVE

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Would the conditions in 6801(a) be satisfied if the employee retires after the leave of absence

Position: No

Reasons: The provision requires that the employee returns to his or her regular employment with the employer or another employer that participates in the same or similar arrangement for a period that is not less than the period of leave. Retirement of the participant would not satisfy this condition.

Signed on March 28, 2003

XXXXXXXXXX

Dear Colleague:

Thank you for your letter of February 5, 2003, outlining the concerns of your constituent, XXXXXXXXXX, about a Deferred Salary Leave Plan (DSLP).

A DSLP is a plan or arrangement that permits an employee to fund, through salary deferrals, a leave of absence from his or her employment. Generally, salary deferrals are included in income on an accrual basis, notwithstanding that the cash may only be received in a subsequent year. However, there is an exclusion from these rules for DSLPs. In these cases, the salary deferrals are taxed when received, and not when earned.

The Income Tax Regulations set out the rules governing DSLPs. In particular, the Regulations contain a provision that states that an employee is to return to his regular employment with the employer, or an employer that participates in the same or a similar arrangement, after the leave of absence for a period that is not less than the period of the leave of absence. Consequently, a leave of absence followed by the subsequent retirement of the participant in the plan does not meet the requirements of the Regulations because the employee does not intend to return to his or her regular employment. I understand that the purpose of these rules is to fund a true leave of absence from employment and not to allow for income averaging as a bridge to retirement.

I would mention that your request for a solution would require a change in tax legislation. As you are aware, amendments to the Income Tax Regulations are the responsibility of the Department of Finance. In this regard, I assure you that Finance officials are aware of these concerns.

The Canada Customs and Revenue Agency (CCRA) is responsible for administering the tax legislation as passed by Parliament. It is a continuing goal of the CCRA to carry out this responsibility both fairly and uniformly for all taxpayers.

I trust that the above information will assist you in replying to XXXXXXXXXX.

						Sincerely,

						Elinor Caplan

c.c.: Minister's Office
Political Assistant

Mary Pat Baldwin
823-2631
2003-000571
March 14, 2003