| Mr. Owen Brophy | |
| SFL Steering Committee | |
| Treasury Board of Canada | File No. 5-8617 |
| 4th Floor, West Tower | F. Francis |
| Esplanade Laurier | 957-3496 |
| 300 Laurier West | |
| Ottawa, Ontario | |
| K1A 0R5 |
September 25, 1989
Dear Mr. Brophy:
Re: Public Works Canada 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 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.
Our review of the Plan indicates that, with the exception of paragraph 17, the provisions contained therein are in accordance with the Regulations.
Paragraph 17 of the Plan gives the employees the right to withdraw funds from the Plan prior to maturity by giving written authorization 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 from 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 (unless paragraph 24 applies).
The Plan should also stipulate that the leave of absence must commence after a period not exceeding 6 years after the date on which the deferrals commence.
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.
It should be noted that the determination of whether Canada Pension Plan contributions should be made on the gross salary earned or on the net salary received has not yet been finalized.
We trust the above comments will be of assistance to you.
Yours truly,
for Director Financial Industries DivisionRulings Directorate