| Atomic Energy Control Board | |
| P.O. Box 1046 | |
| Ottawa, Ontario | File No. 5-8723 |
| K1P 5S9 | D.S. Delorey |
| (613) 957-3495 | |
| Attention: R.W. Blackburn, Director | |
| Planning & Administration Branch |
October 25, 1989
Dear Sirs:
Re: Proposed Policy on Self-Funded Leave (the "Plan")
This is in reply to your letter of September 21, 1989.
You enclosed with your letter a copy of the Plan, together with a copy of the proposed Application form to be signed by a participant, and ask us to confirm that the Plan "meets the taxation guidelines". By "taxation guidelines", we presume you refer to the provisions of paragraph 6801(a) of the Income Tax Regulations (the "Regulations") that govern deferred salary leave plans. We do not provide such confirmations other than in reply to an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R. We nevertheless offer the following general comments.
Our review of the submitted material indicates that the Plan, in general, complies with the provisions of paragraph 6801(a) of the Regulations. We did note, however, the following concerns that you should address in order to ensure that it complies therewith.
1. The Plan must provide that the leave of absence shall be for a period of not less than 6 consecutive months. We suggest that the first paragraph under the caption "Definition" be revised to clearly cover this requirement.
2. The Plan must provide that a participant is to return to his regular employment for a period at least equal to the period of absence. In this regard, we suggest you delete the word "expected" in line one of the third paragraph under the caption "Definition".
3. The Plan must provide that all amounts held for a participant are to be paid to the participant by December 31 of the year that commences after the end of the deferral period. In this regard, we have the following comments:
(a) We suggest that this requirement be clearly set out in the Plan, perhaps as an added paragraph under the caption "Financial Arrangements".
(b) We note in the fourth paragraph under the caption "Withdrawal and Deferrals" the comment "funds shall be released ... on the date specified and determined by the executors or administrators of the estate". It should be stated that this date will be no later than December 31 of the year that commences after the end of the deferral period.
4. The Plan must be established for the main purpose of permitting the participant to fund a leave of absence, not to provide benefits to the participant on or after retirement. In this regard, we have the following comments:
(a) The first paragraph under the caption "Withdrawals and Deferrals" provides that a participant may withdraw from the Plan no later than six months prior to the planned leave date by giving a written notice to his manager and the Compensation Services Unit. A voluntary withdrawal provision of this nature may indicate that the main purpose of the Plan is not to permit the participant to fund a leave of absence but rather to defer income taxes. We suggest that the Plan be amended to provide a participant with the right to withdraw funds only in the case of financial or other hardship, or upon termination of employment.
(b) While number 3 of the proposed Application form reflects an awareness of the above-mentioned purpose test, we suggest for greater certainty that a reference to this test be made in the Plan itself, perhaps as part of the approval procedure discussed under the caption "Procedure For Application".
5. The Plan must provide that the leave of absence is to commence immediately after the deferral period and the deferral period cannot exceed six years. While indications are that this requirement is met under the Plan, we suggest for greater certainty that a reference to this requirement be made in the postponement options set out in the third and fourth last paragraphs under the caption "Withdrawals and Deferrals". Should any postponement cause the leave of absence to commence at a later date, the provision discussed in 3 above will apply and all amounts held under the Plan will have to be paid to the participant no later than December 31 of the year that commences after the end of the deferral period.
6. The Plan must provide that interest or other amounts earned in a calendar year on a participant's deferred amounts must be paid to the participant by December 31 of that year. Such interest will represent employment income to the participant. While number 11 of the proposed Application form indicates that this requirement will be met, we find the third paragraph under the caption "Tax Considerations" to be confusing in this regard and we suggest it be reworded to clearly reflect this requirement.
7. The Plan must provide that throughout the period of leave of absence the participant does not receive any salary or wages from the employer, or from a person with whom the employer does not deal at arm's length, other than the deferred amounts and reasonable fringe benefits. We suggest that the first paragraph under the caption "Definition" be reworded to clearly reflect this requirement.
8. In line three of the last paragraph under the caption "Tax Considerations", we suggest that "employment" be inserted before "income".
The above comments reflect expressions of opinion only and, as indicated in Information Circular 70-6R, they are not binding on the Department. We trust however that they will be of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate