6 July 1989 Ministerial Letter 58258 F - Deferred Salary Leave Plan

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.

July 6, 1989

Dear Sirs:

Re:  Deferred Salary Leave Plan (the "Plan")

This is in reply to your letter of June 6, 1989, referred to us by our Assessing Directorate, requesting a ruling in respect of the above noted plan for the purposes of the definition of salary deferral arrangements.

We have reviewed your plan and are of the opinion that, in general, it complies with the provisions of section 6801 of the Income Tax Regulations (the "Regulations") which governs deferred salary leave plans. We did note, however, some concerns which you should address in order to make the plan fully compatible with the Regulation.

1.     24(1) Regulation clause 6801(a)(iv) requires that all interest or other additional amounts that have accrued for the benefit of the employee in a taxation year must be paid to the employee in that year.  For clarity, the Plan should note that a taxation year is a calendar year and in consequence, any amounts earned in a particular calendar year must be paid out by December 31 of that year.

2.     24(1) This provision may indicate that the main purpose of the Plan is not to permit the employees to fund a leave of absence from employment but rather to defer income taxes. As a consequence thereof, the Plan should be amended to give the employee the right to withdraw funds only in the case of financial or other hardship.

3.     Plan Guideline 5, the last line appears to have been included in error.

Please be advised that this letter is not an advance income tax ruling, as requested, but is merely a statement of opinion on the specifics of your proposed plan and it is not binding upon the Department.

While in our view an advance income tax ruling should not be necessary if the plan is amended as discussed above, should you still desire one, we must advise that it may only be provided when the procedures for its request are complied with. A proper request entails the provision of all related documents for our review as well as an identification of all of the specific provisions of the Act in respect of which the request is to be considered. The procedures are discussed at length in our Information Circular I.C. 70-6R, a copy of which is attached for your reference.

In your previous correspondence with the Department you requested advice on the calculation and deduction of CPP and UIC premiums and you were advised that these were determined as detailed in IT 502 paragraph 48 where a deferred salary leave plan is an employee benefit plan. At this time we would like to add that while these provisions are presently valid, they are currently under review and may be modified at a later date.

We trust these comments will be satisfactory to your needs.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate