| 19(1) | File No. 5-9563 |
| Maureen Shea-DesRosierss | |
| (613) 957-8953 |
February 22, 1990
Dear Sirs:
Re: Deferred Salary Leave Plan
This is in reply to our letter of January 15, 1990 with an attached copy of your 24(1) Prepaid Leave Plan (the "Plan").
You request that we confirm that the content of the Plan complies with the provisions of section 6801 of the Income Tax Regulations (the "Regulations").
Our review of the provisions under the Plan indicates that there are a number of deficiencies which should be amended to ensure that the Plan complies with the Regulations:
1. Pursuant to subparagraph 6801(a)(iv) of the Regulations, the Plan must provide that any interest or additional amounts that may reasonably be considered to have accrued for the benefit of me employees in a year must be paid in that year to the employee. 24(1)
2. The Plan must provide that the employee returns to his employment for a period at least equal to the period of the leave of absence so that it complies with subparagraph 6801(a)(v) of the Regulations. 24(1)
3. The Plan must provide that if the employee does not take his leave of absence in the designated period, the Deferred Amount must be paid to him/her in the first year that commences after the end of the deferral period.
4. 24(1)
5. Pursuant to subparagraph 6801(a) (iii) of the Regulations, the Plan must provide that throughout the period of leave of absence, the employee will not receive any salary or wages from the employer or from a person with whom the employer does not deal at arm's length other than the amount by which the employee's salary under the Plan was deferred or is to be reduced and reasonable fringe benefits.
6. Pursuant to subparagraph 6801(a) ii) of the Regulations, the Plan must provide that the leave of absence should be for a period of not less than 6 consecutive months.
7. Pursuant to subparagraph 6801(a)(i) of the Regulations, the Plan must provide that the leave of absence is to commence immediately after the deferral period and said deferral period must not exceed 6 bars from the date on which deferrals are commenced. 24(1)
8. 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. As far as Canada Pension Plan is concerned, premiums deductions will be based on net salary during both the deferral period and the leave period.
9. Subparagraph 6801(a) (ii) of the Regulations requires that the percentage deferral in any taxation year of the employee must not exceed 33 1/3% of the amount of salary that the employee would normally receive in that year. A taxation year for an individual is usually the calendar year. 24(1)
We wish to point out that this letter is not an advance income tax ruling but is merely a statement of opinion on the specifics of your Plan and is not binding upon the Department. We trust, however, that our comments will be of assistance.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate