7 October 1990 Income Tax Severed Letter - 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.

Dear Madam:

Re: Deferred Salary Leave Plan

This is in reply to your letter of August 1, 1990 with an attached copy of your revised Article 29 - Prepaid Leave Plan ("PLP").

You request that we confirm that the content of the PLP complies with the provisions of section 6801 of the Income Tax Regulations.

Our review of the revisions made to the PLP, as a result of our letter on February 22, 1990, would indicate that the revised PLP complies with section 6801 of the Income Tax Regulations.

We wish to advise you of our position regarding Canada Pension Plan ("CPP") contributions during both the deferral period and the leave period. CPP contributions should be based on net earnings, excluding the deferred amounts, during the period of deferral, and upon the deferred amounts paid to the employee during the leave of absence. Where the deferred amounts are paid to the employee by a trustee, that trustee is deemed to be an employer of the employee by the CPP Act and is therefore required to pay the employer's contribution in respect of that employee. Thus, the employer portion of CPP contributions is required to be paid during the leave period regardless of who pays the employee his deferred amounts during that time. If the employee is to pay both his portion and the employer's portion during the leave period (a matter to be arranged between the employer and the employee) and the trustee/employer recovers the employer's portion from amounts otherwise payable to the employee, the amount so recovered will not form part of the employee's gross salary from that employer.

Although the trustee is deemed to be an employer of the employee by the CPP Act, the employee does not enter into new employment with the trustee when he goes on leave. Consequently, while CPP contributions that are required to be paid during the leave period are to be deducted and remitted by the trustee as by any other employer, those CPP contributions paid in the year prior to the leave period must be taken into consideration by the trustee. For example, if the required contributions for a year by an employee were $600 and the employee contributed $400 before going on leave, the trustee would be required to deduct and remit CPP contributions for that year of $200 on behalf of the employee, plus the employer's portion.

The trustee will be required to prepare T4s reflecting the amount paid by the trustee to the employees under the Plan and, among other things, the CPP contributions. However, since CPP contributions made during the year prior to the leave period are to be taken into consideration by the trustee, the amount of contributory earnings reported by the trustee may not coincide with the earnings reported in box "C" for that particular year. If such is the case, the amount of contributory earnings must be recorded in box "I" of the T4 which should in turn coincide with the amount of contributions reported in box "D". There may also be instances where the trustee will not have made any deductions for CPP because the employee reached the maximum contributions prior to the leave period. If such is the case, a check mark should be indicated in box "J" of the T4 under CPP.

If further information is required concerning the trustee's responsibility with respect to CPP contributions or the preparation of 74s etc., the enquiry should be directed to Mr. Pierre M. Paquette at (613) 952-8179 or to the following address:

Coverage Policy and Legislation Section
Source Deductions Division
Revenue Canada Taxation
875 Heron Road
Ottawa, Ontario
K1A 0L8

We wish to point out that this letter is not an advance income tax ruling but is merely a statement of opinion on the specifics of your PLP and is not binding upon the Department.