6 February 2001 External T.I. 2001-0066605 - DSLP, Income Distribution

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:

Where a single trust is used for all participants in a deferred salary leave plan under paragraph 6801(a) of the Regulations, can the trust include the payments to the employees that are on leave in the year in the distributions that are required under clause 6801(a)(iv)(A) of the Regulations?

Position: No.

Reasons:

Under clause 6801(a)(iv)(A), the trust has to provide that the income earned for the benefit of the employee has to be paid to the employee. This condition would not be satisfied if the trust pays the income to another employee.

XXXXXXXXXX 2001-006660
M. P. Sarazin, CA
February 6, 2001

Dear XXXXXXXXXX:

Re: Deferred Salary Leave Plan Income Distributions

This is in reply to your facsimile of January 19, 2001, requesting our views regarding the application of clause 6801(a)(iv)(A) of the Income Tax Regulations (the "Regulations") where a single trust is used for all participants in a deferred salary leave plan ("DSLP").

You ask whether payments by the single trust to participants that are on leave during the year could be considered as payments of income to participants under the DSLP. Consequently, the single trust would not have to pay and report the income earned by the trust for each participant in the DSLP where the deferred salary paid out exceeds the income earned by the trust in the year.

Comments

Confirmation of the tax consequences associated with completed transactions are provided by the relevant tax services office. Opinions concerning proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. For more information concerning advance tax rulings, please refer to Information Circular 70-6R3 dated December 30, 1996, issued by the Canada Customs and Revenue Agency (the "Agency"). Copies of information circulars and interpretation bulletins are available from your local tax services office or on the Internet at the following site - http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. However, we can provide you with the following general comments.

Clause 6801(a)(iv)(A) of the Regulations includes the following condition:

"..., 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".

In order to satisfy this condition, the trust is required to pay the income earned in respect of a participant's deferred salary to the participant in the year that the income is earned. A payment to a DSLP participant during the period of leave consists of salary that has been deferred to fund the leave of absence and income earned in the year the leave is taken that has not been paid out to the participant. The payment of deferred salary to one participant in a DSLP cannot be considered as a payment of income earned on deferred salary in respect of another participant in the DSLP. Consequently, the single trust is required to make a payment to each participant representing the income earned in the taxation year in respect of the participant's deferred salary.

We trust the above comments will be of assistance to you.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate