Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Whether early retirement results in a penalty to an employee in respect of the termination from a DSLP?
Position: No
Reasons:
Regulation 6801(a) requires satisfaction of a number of conditions at the time the arrangement is entered into. Subsequent inability to satisfy the conditions does not result in a penalty, but will result in taxation of the deferred amounts in the year it is known that a condition can not be satisfied.
MINISTER # 97-02639M
DEPUTY MINISTER'S OFFICE (2)
ADM'S OFFICE (2)
PENDING
RETURN TO INCOME TAX RULINGS
AND INTERPRETATIONS DIRECTORATE
15TH FLOOR, ALBION TOWER
Signed on
XXXXXXXXXX
Dear XXXXXXXXXX:
I am writing in response to your letter of April 8, 1997, concerning the requirement, under a deferred salary leave plan, that an employee return to his or her regular employment for a period that is not less than the leave of absence.
In your letter, you enclosed a copy of a letter you received from your constituent, XXXXXXXXXX, wherein she advised you that she has participated in a deferred salary leave plan with XXXXXXXXXX
Where an employee defers part of his or her salary to a later year the arrangement may be considered to be a salary deferral arrangement. If it is, the deferred amount is required by the Income Tax Act to be included in income in the year earned. There are various arrangements that are exempted from being a salary deferral arrangement, and one of these exemptions is a deferred salary leave plan meeting the conditions in paragraph 6801(a) of the Income Tax Regulations. The conditions include a requirement that the employee agree to return to work for a period after the leave of absence at least equal to the period of leave.
The Regulations were developed in response to representations made to the Minister of Finance by teachers' groups, university professors, school boards and other associations that typically grant sabbatical leaves to their employees, to allow leaves of absence to be funded through salary deferral. It was agreed that an arrangement should be established to fund a bona fide leave of absence and not to provide benefits to a participant on or after retirement. Accordingly, the Department of Finance recommended the inclusion of a condition requiring the return to regular employment to ensure that the arrangement is not designed or used to provide benefits on or after retirement.
Where a condition in paragraph 6801(a) is no longer complied with, the participant would be considered to have terminated or withdrawn his or her participation in the plan. The terms of the plan would usually require the payment of the deferred amounts to the participant within a reasonable period of time after his or her termination or withdrawal from the plan. Where the payment is made within a reasonable period of time, the payment would be included in the participant's income in the year received.
I have identified the tax consequences that would result should XXXXXXXXXX decide not to return to work after her leave of absence. I can also confirm that there is no provision in the Income Tax Act or the Income Tax Regulations that can force XXXXXXXXXX to return to work after the leave of absence.
I trust my comments will be of assistance to you in dealing with XXXXXXXXXX concerns.
Yours sincerely,
Jane Stewart, P.C., M.P. M. Sarazin 957-2131 971119 May 1, 1997 ??