In addition to providing a comprehensive discussion of the deferred salary leave plan (“DSLP”) rules, CRA addressed the question whether employees working 10 months a year who are temporarily laid off during the summer without being on the recall list but having already been granted an assignment for the next school year, can participate in the plan, as follows:
If, at the time the agreement is made with an employee, the parties expect the employee to lose his or her employment during the plan, the plan would not qualify as a DSLP in respect of the employee and paragraph 6801(a) would not apply. In this case, deferred amounts should be included in the employee's income in the taxation year in which they are earned and deferred rather than in the year in which they are paid to the employee.
However if, at the time the agreement is made with an employee, it is clear from all the facts of the situation that the employee will meet all the requirements of paragraph 6801(a), being temporarily out of work during the summer period should not, in and of itself, prevent the employee from participating in a DSLP.
Other points made included:
- Although Reg. 6801(a) refers to an “arrangement,” CRA expects to see an agreement describing the terms and how the deferred amounts will be held.
- If there is a trust arrangement, this will be an EBP, with the interest income therefrom being taxed currently in the employees’ hands net of plan expenses.
- A hybrid arrangement is permitted in which, during the employee’s leave, the employee first receives amounts whose recognition was deferred under the DSLP rules, and then receives advances of salary or wages which are to be earned after returning, with such amounts in both cases being included in the employee’s income under ss. 6(3) and 5(1).
- In this type of arrangement (or one where the employee only receives advances during the leave – in which case, it is not within the DSLP rules), the employee is entitled to a s. 8(1)(n) deduction as the advances are “repaid” (i.e., out of reduced pay cheques following the return to work).
- Although under the DSLP rules the employee cannot receive salary or wages during the leave, reasonable fringe benefits are permitted.
- The employee is required to return to work for at least the period of the leave - so that, for example, an employee who worked 20 hours per week before a six month leave, could not return to work for only three months at 40 hours per week.
- Upon death or retirement of the employee, the deferred amounts are immediately recognized.