12 September 1990 Income Tax Severed Letter ACC9723 - Deferred Salary Leave Plan ("DSLP")

5-901487
24(1)                                          M. Shea-DesRosiers
                                               (613) 957-8953

19(1)

September 12, 1990

Dear Sirs:

Re: Deferred Salary Leave Plan ("DSLP")

This is in reply to your letter of June 28, 1990 with an attached
copy of your proposed DSLP for thee         24(1)                 

You requested that we confirm that the content of the DSLP complies with the provisions of section 6801 of the income Tax Regulations (the "Regulations"). Our review of the provisions under the DSLP indicates that there are a number of deficiencies which should be amended to ensure that the DSLP complies with the Regulations.

1.        The DSLP should indicate clearly that it is not
          established to provide benefits to the participants on or 
          after retirement.

2.        The DSLP must provide that, in the event the participant 
          does not take his leave of absence in the designated    
          period, the deferred amounts will be paid to the        
          participant in the first taxation year that commences   
          after the end of the deferral period.  Clause 10.2      
          should be amended accordingly.
3.        For greater clarity we recommend clause 5.3 be amended to 
          indicate that any interest or additional amounts that may 
          reasonably be considered to have accrued for the benefit 
          of the employees in a year must be paid by December 31 of 
          that year to the employees.

4.        Pursuant to subparagraph 6801(a) (iii) of the
          Regulations, the DSLP must provide that throughout the
          period of leave of absence, the employee does 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 DSLP was deferred or is to be reduced and
          reasonable fringe benefits.   24(1) 

7.        Canada Pension Plan ("CPP") premiums are to be based on 
          the employee's salary net of the deferred amounts during 
          the period of deferral and on the deferred amounts when 
          paid to the employee during the leave period.  When the 
          deferred amounts are paid to the employee by a trustee of 
          the Plan during the leave period, that trustee is deemed 
          by the CPP Act to be an employer of the employee and is 
          therefore required to pay the employer's CPP contribution 
          in respect of that employee.  Where the trustee/employer 
          recovers the employer's CPP contribution from amounts   
          otherwise payable to the employee, it is our view that  
          this recovered amount will not be part of the employee's 
          gross salary from that trustee/employer and therefore
          need not be included on the employee's T4 slip. 

Although the trustee is deemed under the CPP Act to be an employer, the employee does not enter into new employment with the trustee when he goes on leave. Consequently, while CPP contributions that are required to be paid during the leave period are to be deducted and remitted by the trustee as by any other employer, those CPP contributions paid in the year prior to the leave period must be taken into consideration by the trustee. For example, if the required CPP contributions for a year by an employee were $600 and the employee contributed $400 before going on leave, the trustee would be required to deduct and remit CPP contributions for that year of $200 on behalf of the employee, plus the employer's portion.

The trustee will be required to prepare T4s reflecting the amount paid by the trustee to the employees under the Plans and, among other things, the CPP contributions. However, since CPP contributions made during the year prior to the leave period are to be taken into consideration by the trustee, the amount of contributory earnings reported by the trustee may not coincide with the earnings reported in box "C" for that particular year. If such is the case, the amount of contributory earnings must be recorded in box "I" of the T4 which should in turn coincide with the amount of contributions reported in box "D". There may also be instances where the trustee will not have made any deductions for CPP because the employee reached the maximum contributions prior to the leave period. If such is the case, a check mark should be indicated in box "J" of the T4 under CPP.

If further information is required concerning the trustee'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 0L8

You are advised that this letter is not an advance income tax ruling but is merely a statement of opinion on the specific of your proposed DSLP and it is not binding upon the Department.

While in our view an advance income tax ruling should not be necessary if the DSLP is amended as discussed above, should you desire one, we will be pleased to again review your DSLP upon its amendment and issue a ruling thereon provided your request is made in the manner outlined in Information Circular 70-6R, a copy of which is attached for your convenience.

We trust the above comments will be of assistance to you.

Yours truly,

for Director Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch