| 19(1) | File No. 7-4045 |
| F. Francis | |
| (613) 957-3496 |
July 27, 1989
Dear Sirs:
Re: Proposed Staff Self-Funded Leave Plan (the "Plan")
This is in reply to your letter of June 13, 1989 to the Belleville District Office wherein you requested our opinion as to whether the Plan would 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 (the "Act").
We do not give opinions in respect of proposed transactions other than as a reply to an advance income tax ruling request. However, we may off the following general comments.
Our review of the Plan indicates that there are a number of deficiencies which should be amended to ensure that the Plan complies with the Regulations:
1. The Plan must provide that, in the event the employee does not take his leave of absence in the designated period, the deferred amounts will be paid to him in the first taxation year that commences after the end of the deferral period.
2. Subparagraph 6801(a)(i) of the Regulations provides that a leave of absence must commence immediately after the deferral period and that the deferrals are commenced. In our view the Plan should clearly provide that under no circumstance will a deferral period in excess of 6 years be allowed. Should any postponement cause the leave of absence to commence at a later time, the provisions of subparagraph 6801(a)(vi) of the Regulations will have application and all amounts held under the Plan will have to be paid to the employee no later than the first taxation year that commences after the end of the six year deferral period.
3. The Plan will be subject to the rules governing Employee Benefit Plans as defined under subsection 248(1) of the Act. As a consequence thereof, all amounts paid out of the Plan, including interest, will be included in the employee's income under paragraph 6(1)(g) of the Act as employment income. Paragraph 7 of the Plan should be amended accordingly. Furthermore, this paragraph should specify that interest on deferred amounts must be paid to the employees on an annual basis.
4. It should be noted that Unemployment Insurance will be deducted on gross salary in the year of deferral.
We trust the above comments will be of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate