Principal Issues: Can a term employee whose contract is renewed each year but who is only factually employed for 10 months each year remain in the DSLP over the course of several such contracts?
Position: No.
Reasons: Violates the requirements on 6801(a)(i), which requires that the leave of absence commence immediately after a period of deferrals. There is not a period of deferrals in this case, but rather, a series of periods of deferral, thus the requirement cannot be met. Also, the leave is planned to start in July, when the employee's contract is up. At that point, it cannot be accurately described as a leave of absence, as the individual is no longer an employee.
XXXXXXXXXX 2005-012290 P. Kohnen, CMA May 27, 2005
Dear XXXXXXXXXX:
Re: Technical Interpretation - Deferred Salary Leave Plan ("DSLP")
This is in response to your submission of March 30, 2005 in which you requested our comments in respect of the participation by certain employee groups in a DSLP.
In addition to certain term contract teachers who are employed through a 12-month period but only report to work for 10 months and whose contracts are routinely renewed each school year, there are also various other employees in your school board that also typically work on a series on term contracts that are renewed each year, but who are on contract for only 10 months each year. These individuals are without contract for approximately 2 months each year, on a recurring basis. You have asked for our confirmation on the acceptability of participation by such individuals in a DSLP.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an Advance Income Tax Ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.
Our comments
In our view, it would not be acceptable for an individual whose employment contracts each year run for 10 months and who is not employed by the school board for the remaining two months of each year to participate in the DSLP that is generally made available to employees of your school board.
In our view, the participation of such a member on an ongoing basis would violate subparagraph 6801(a)(i) of the Income Tax Regulations (the "Regulations"), which requires that the leave of absence commence immediately after a period of deferrals. Where an individual is only employed for a portion of each calendar year, there would not be one period of deferrals, but rather, a series of periods of deferral, thus the requirement would not be met. Furthermore, we note from your submission that the proposed leave for such a member would commence when the employee's term contract is up. At that point, it would not be accurately described as a leave of absence, as the individual would no longer be an employee.
In regard to the teachers who are term employees throughout a 12-month period and whose contracts are routinely renewed each year, it is our view that, as long as it is reasonable to assume that their contracts will continue to be renewed throughout the term of the plan, then it will be reasonable to allow their continued participation in the DSLP.
As was noted during a previous telephone conversation (XXXXXXXXXX/Kohnen), we are forwarding a copy of this letter to Colleen Kearst who is a Resource Officer in the Sudbury Tax Services Office for their assistance is determining the appropriate tax treatment of the member to which your submission applies.
In regard to the follow-up question that was submitted in your electronic message of April 12, 2005, please note that if a participant takes a leave of absence during their planned deferral period, while continuing to be employed by the school board, the Income Tax Act does not specifically require that the deferred amounts held on behalf of the participant be paid out before the commencement of the leave of absence. As long as the participant remains continuously employed, the normal time requirements governing the payout of deferred amounts under a DSLP, pursuant to subparagraph 6801(a)(i) of the Regulations, will apply.
We trust that the above comments will be of assistance to you. Please do not hesitate to contact Mr. Phil Kohnen at (613) 957-2093 should you require further information.
Yours truly,
Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
c.c. Colleen Kearst
Sudbury Tax Services Office