XXXXXXXXXX
Attention: XXXXXXXXXX
Dear Sir\Madam:
RE: Deferred Salary Leave Plans ("DSLP") Regulation 6801(1)
This is in reply to your letter of January 29, 1993 concerning DSLP where an employee might quit after the leave of absence or return to work before the end of the leave of absence.
Section 6801 of the Income Tax Act Regulations (the "Regulations") sets out the following terms and conditions for DSLP.
Subparagraph 6801(a)(i) of the Regulations requires that the arrangement to defer salary is established to permit the employee to fund a leave of absence from employment and not to provide benefits on or after retirement. The leave of absence to be taken by the employee for the purpose of permitting his full-time attendance at a designated educational institution must be of three consecutive months, or in any other case, six consecutive months.
Subparagraph 6801(a)(v) of the Regulations states that the arrangement must provide that the employee return to regular employment with the employer after the leave of absence for a period equal to the leave of absence.
Subparagraph 6801(a)(vi) of the Regulations requires that deferred amounts must be paid out no later than the end of the calendar year commencing after the deferral period ends.
Given these conditions, it is mandatory that the arrangement prohibits the employee from withdrawing from the plan at will, and that the employer ensures that the deferral period ends sufficiently in advance of any planned retirement by the employee. Where the arrangement contains a provision providing the return to work but it is reasonable to assume, at the time of the arrangement's creation or at a later date that the parties to the contract do not intend to abide by the provision, then the arrangement between the employer and the employee would not be prescribed plan. Such an arrangement would be subject to the salary deferral arrangement rules from its inception.
The Department will not generally object to a return to employment before the end of the six consecutive months period if the circumstances warrant such an action at that time.
Our position in the past, with respect to paragraph 6801(a)(i) of the Regulations has been that the minimum six month leave of absence could only include those months during which a teacher would normally be required to report to work. We have recently re-evaluated our position and have decided that if a teacher is employed but, under his or her contract of employment, is not required to report to work for a period between semesters, the time between semesters may be included in the calculation of the minimum six month leave of absence.
Where it is reasonable for the employer to expect an employee to fulfill a commitment but the employee reneges on that commitment, the Income Tax Act does not impose any penalty on employees who fail to comply with agreements with their employers.
We trust the above comments will be of assistance to you.
Yours truly,
for Director Financial Industries Division Rulings Directorate