10 September 1999 External T.I. 9913865 - REQUIREMENTS OF 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: Income Tax Act requirements of 6801(a) DSLP

Position: Explained requirements

Reasons: Some deficiencies in plan

xxxxxxxxxx 991386
S. E. Thomson
Attention: xxxxxxxxxx

September 10, 1999

Dear XXXXXXXXXX:

Re: Deferred Salary Leave Plan

This is in reply to your letter of May 18, 1999 requesting our comments on two deferred salary leave plans (Plan "A" and Plan "B"). Although your letter specifies that you are not asking for a ruling, merely a technical interpretation, your request appears to relate to a specific proposed transaction. Therefore an advance income tax ruling rather than a technical interpretation must be requested. Enclosed for your information is Information Circular 70-6R3, which explains how to apply for an advance ruling. We can, however, offer the following general comments with regard to deferred salary leave plans ("DSLP's")

Paragraph 6801(a) of the Income Tax Regulations (the “Regulations") sets out the requirements to exempt DSLP's from the definition of “salary deferral arrangement" in subsection 248(1) of the Income Tax Act (the "Act").

In addition, we refer you to Advance Tax Ruling ATR-39, dated March 11, 1991, which is available on our Internet site (http://www.rc.gc.ca) or from your local Revenue Canada tax services office.

We offer the following comments based upon our interpretation of the relevant legislation:

1. A leave of absence must commence immediately after the deferral period, and in any case, the leave of absence must commence no more than 6 years after the commencement of the deferral period.

2. Payments made to the employees during the leave period must be fully paid by the end of the year following the end of the deferral period.

3. Interest or other amounts accruing on the deferred amounts to the benefit of the employee in a year shall be paid to the employee in the year and are to be reported as employment income on the T4 slip

4. During the leave period, the employee may not receive any salary from the employer other than the amount of the deferred salary (and reasonable fringe benefits).

5. The agreement should only be terminated in extenuating circumstances (e.g., death, disability or loss of employment).

6. The employee must return to 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. If it can be determined that the employee at the outset did not intend to return to employment, the plan will not meet the requirements of paragraph 6801(a) of the Regulations and will be a salary deferral arrangement.

We trust that our comments have been helpful. If your client wishes to apply for an advanced income tax ruling as set out in Information Circular 70-6R3, we would be pleased to consider the request.

Yours truly,

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