5-910619
This is in reply to your letter of January 28, 1991 to the Winnipeg Taxation Centre requesting the Department's comments on your proposed Deferred Salary Leave Plan (DSLP).
Our review of the draft copy of the DSLP indicates that the following changes should be made to the plan in order to ensure that it complies with section 6801 of the Income Tax Regulations.
24(1)
The plan should clearly state that the leave must commence no later 6 years after the start of the salary deferrals; that is, the one year extension cannot extend the maximum deferral period beyond 6 years.
Interest earned on the deferred amounts must be paid annually to the participant as stated in paragraph 6 of the Memorandum of Agreement, but the plan should state that it is to be reported as employment income and not interest income.
The plan should specifically state that during the leave period the employee cannot receive any salary from the employer or persons not dealing at arms length with the employer other than the deferred amounts plus fringe benefits. Also, the plan should specifically state that the employee is required to return to work for a period equal to the period of the leave. We would point out that the maximum deferral is 33 1/3% of the calendar year salary, not the school year salary.
As indicated in paragraph 4.2 a member should be permitted to withdraw only under extenuating circumstances. However, there is no requirement in the Income Tax Regulations that he must give notice of a specific length of time 6 months or otherwise.
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 period of leave.
Canada Pension Plan ("CPP") contributions should be based on net earnings, excluding the deferred amounts, during the period of deferral, and on the deferred amounts paid to the employee during the leave of absence. The employer portion of CPP contributions is required to be paid during the leave period. 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 employer recovers the employer's portion from amount's otherwise payable to the employee, the amount so recovered will not form part of the employee's gross salary from the employer.
If further in information is required concerning the employer's responsibility with respect to CPP contributions or the preparation of T4s etc, the enquiry should be directed to Mr. Pierre M. Paquette at (613) 952-8179 or to the following address:
Coverage Policy and Legislation Section Source Deductions Division Revenue Canada Taxation 875 Heron Road Ottawa, Ontario K1A OL8
We wish to point out that the letter is a statement of opinion on the specifics of your plan and is not an advanced income tax ruling, consequently it is not binding on the Department.
We trust, however, that our comments will be of assistance to you
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate