| 19(1) | 5-9613 |
| D.S. Delorey | |
| (613) 957-3495 | |
| March 6, 1990 | |
| Dear Madam: |
Re: Earned Deferred Leave Plan
This is in reply to your FAX transmission of February 19, 1990 concerning your proposed earned deferred leave plan (the "Plan").
The provisions that govern salary leave plans are contained in paragraph 6801(1) of the Income Tax Regulations (the "Regulations"). A photocopy of paragraph 6801(a) is enclosed for your perusals. Our review of the submitted material indicates that he Plan in general complies with these provisions. We did note, however, the following:
1. The Plan must be established for the main purpose of permitting the participant to find a leave of absence, not to provide benefits to the participant in or after. In this regard, we note the following:
24(1)
2. 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.
3. The Plan must provide that throughout the leave period the participant will not receive any salary or wages from the employer, or from any other person or partnership with whom theemployer does not deal at arm's length, other than the deferred amounts and reasonable fringe benefits.
4. The Plan must provide that any earnings (interest or otherwise) accrued in a calendar year on a participant's deferred amounts must be paid to the participant by December 31 of that year.
24(1)
Any such earnings paid to ta participant under the Plan represent employment income rather than income from property. Thus if such earnings, are paid to a participant institution from T4 should be used by that 24(1)
7. It should be noted in the Plan that unemployment insurance premiums will be based on the gross salary during the deferral period and will not be payable during the leave period, and that Canada pension plan ("CPP") deductions will be based on net salary during both the deferral period and the leave period.
Where the deferred amounts are paid to the employee by a trustee,that trustee is deemed to be an employer of the employee by the CPP Act and is therefore required to pay the employer's contribution in respect of that employee. If the employee is to pay both his portion and the employer's portion during the leave period (a matter to be arranged between the employer and the employee) and the trustee/employer recovers the employer's portion from amounts otherwise payable to the employee, the amount so recovered will not form part of the employee's gross salary.
This letter is not an advance income tax ruling but is merely a statement of opinion on the specifics of your proposed Plan and is not binding on the Department, as explained in paragraph 24 of the enclosed Information Circular 70-6R. However, should your Plan be amended as indicated above, it is our opinion that it would meet the requirements set out in paragraph 6801(a) of the Regulations.
We trust our comments are of assistance to you.
Your truly,for DirectorFinancial Industries DivisionRulings Directorate