5-912807 24(1)
Dear Sirs:
Re: Teacher-Funded Hold Back Leave Plan
We are writing in reply to your letter of September 18, 1991, in which you ask whether it would contravene the Income Tax Act (the "Act") to permit an employee to defer 50% of his or her salary under a plan such as the one named above. Under your proposed pln, income taxes would be withheld on 100% of the salary.
If taxes are withheld on 100% of the gross annual salary, there is nothing in the Act that would prohibit the holding of 50% of the salary in trust or by someone on behalf of the employee. If the amount held is invested, interest income earned on that amount in a taxation year must be reported on a T5 slip for the employee in the year.
The Act provides for the deferral of tax on salary which is held in trust or by a third party under the provisions of a deferred salary leave plan. Further details concerning this type of plan are contained in the enclosed 39. As you will note, the amount of salary that may be deferred under such a plan is limited to a maximum of 33 1/3% of the annual gross salary. Interest income earned on deferred amounts are considered employment income and must be paid each year and reported on the employee's T4 slip.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate