| Mr. Owen Brophy | |
| SFL Steering Committee | |
| Treasury Board of Canada | File No. 5-8620 |
| 4th Floor, West Tower | F. Francis |
| Esplanade Laurier | 957-3490 |
| 300 Laurier West | |
| Ottawa, Ontario | |
| K1A 0R5 |
September 25, 1989
Dear Mr. Brophy:
Re: Department of External Affairs Proposed Self-funded Leave Plan (the "Plan")
This is in reply to your letter of September 1, 1989 wherein you requested our opinion as to whether the Plan could meet the requirements of a prescribed plan under paragraph 6801(a) of the Income Tax Regulations (the Regulations) for purposes of the definition of salary deferral arrangements in subsection 248(1) of the Income Tax Act.
Our review of the Plan indicates that there are several; amendments that should be made to ensure that the provisions under the Plan are in accordance with the Regulations:
1. The Plan contains a provision in the Section headed "Definition" wherein it states that with the exception of the Public Service Conflict of Interest Guidelines, the Department places no restrictions on the activities the employee wishes to pursue during the leave.
This provision should be expanded to indicate that during the planned leave the employee is not permitted to receive any salary form the employer other than the deferred amounts and reasonable fringe benefits thereof.
2. Paragraph 1 of the section headed Withdrawal/Deferral/Recall gives the employee the right to withdraw from the plan for any reason not later than six months prior to the planned leave by giving written notice to the employer. This provision may indicate that the main purpose of the Plan is not to permit the employees to fund a leave of absence form employment but rather to defer taxes. As a consequence thereof, the Plan should be amended to accord the employee the right to withdraw funds only in the case of financial or other hardship.
3. Paragraph 3 and 4 of the Section headed Withdrawal/Deferral/Recall permit the planned leave to be delayed for up to one year. These provisions should be amended to ensure that requests for postponement of planned leave will only be granted in those instances which result in the planned leave commencing after a period of not exceeding 6 years after the date on which the deferrals commence.
4. It should be noted that the determination of whether Canada Pension Plan contributions should be made on the gross salary earned or the net salary received has not yet been finalized.
Provided that the Plan is amended as noted above, it is our opinion that the Plan will be a prescribed plan under paragraph 6801(a) of the Regulations.
We trust that the above comments will be of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate