8 June 1989 Ministerial Correspondence 1774 F - Salary Deferral Arrangement

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.

June 8, 1989

Dear Sirs:

Re:  24(1) Advance Income Tax Ruling issued on June 8, 1988

This is in reply to your letter of May 3, 1989 wherein you requested a clarification of certain issues which have arisen since the commencement of the Plan.

We will respond to your questions in the same order that they were posed:

1.     You have stated that an employee is presently entitled to make his election to defer in the period form October 1 to November 15 preceding the calendar year in which the Employer's contributions commence.  You enquire as to whether the period may be changed to suit the needs of the employees.

     Provided that the election to defer is made prior to the commencement of the deferrals, it is our view that the application period may be changed to suit the needs of the employees.

2.     It is our position that, upon the death or withdrawal of an employee under the Plan, the contributions must be refunded to the employee or his legal representative within a reasonable time period.

3.     Under the Plan, an employee may elect to receive a lump sum withdrawal of funds upon commencing a leave period.

4.     Funds under the Plan cannot be transferred to a registered retirement savings plan.

5.     In our view, the employee would include in his income funds withdrawn under the Plan, notwithstanding that the spouse is entitled to a share of the funds pursuant to a divorce court order.  The employee would therefore be liable for the tax liability on funds received under the Plan.

6.     Pursuant to subparagraph 6801(a)(v) of the Income Tax Regulations, the Plan must provide that the employee return to work for a period equal to the leave period.  However, the Income Tax Act does not impose any penalty on employees who fail to comply with agreements with their employers.

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

Yours truly,

for Director Financial Industries DivisionRulings Directorate