16 January 1990 Income Tax Severed Letter AC59343 - Salary Deferral Arrangement - Employee Funded Leave Program

19(1)                                             D.S. Delorey
                                                  (613) 957-3495

January 16, 1990

Dear Sir or Madam:

Re: Employee Funded Leave Program (the "Plan")

This is in reply to your letter of December 22, 1989.

You enclosed with your letter a copy of documentation explaining the Plan and ask us to comment on whether or not there is a problem or any mis-information provided therein. As indicated in that documentation, the provisions governing deferred salary leave plans are contained in paragraph 6801(a) of the Income Tax Regulations (the "Regulations"). Our review of the submitted material indicates

24(1)

24(1)

5.        As indicated above, the Plan must comply with the rules
          set out in paragraph 6801(a) of the Regulations, not
          with "Revenue Canada Regulations or guidelines", etc. 
          We therefore suggest that the following changes be made
          to the draft Employee Information guidelines:

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With respect to the particular points raised in your letter, our comments are as follows:

6.        The proposed procedures set out in point 1 of your
          letter appear to be appropriate.  However, since they
          relate to administrative procedures, we suggest that
          you discuss your proposals with officials of the
          Edmonton District Taxation Office.

7.        With respect to point 2 of your letter, Canada Pension
          Plan ("CPP") premiums are to be based on the net salary
          received by the employee during both the deferral
          period and the leave period.  Where the deferred
          amounts are paid to the employee by a trustee, that
          trustee is deemed to be an employer of the employee by
          the CPP Act and is therefore required to pay the
          employer's contribution in respect of that employee. 
          Thus, the employer portion of CPP Contributions is
          required to be paid during the leave period regardless
          of who pays the employee his deferred amounts during
          that time.  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 trustee/employer recovers the
          employer's portion from amounts otherwise payable to
          the employee, the amount so recovered will not form
          part of the employee's gross salary from that employer.

8.        With respect to point 3 of your letter, we agree with
          your understanding that Unemployment Insurance premiums
          are to be based on gross salary during the deferral
          period and are not payable during the leave period.

          24(1)

9.        With respect to point 4 of your letter, the applicable
          provision is subparagraph 6801(a)(ii) of the
          Regulations.  That provision in effect requires that
          the amount deferred in a taxation year not exceed 33
          1/3% of the salary or wages that the employee would
          have received in that year but for the deferment. 
          Thus, the contributions set out in your example would
          be within the rules.  However, there is nothing in the
          Regulations preventing an employer from stipulating
          that the maximum contributions in any one taxation year
          is limited to 33 1/3% of the salary or wages that the
          employee would otherwise receive in that year during
          the deferral period.

Should the Plan documentation be amended as above, it is our view that the Plan will meet the requirements set out in paragraph 6801(a) of the Regulations.

The above comments reflect an expression of opinion only and are not binding on the Department, as stated in paragraph 24 of Information Circular 70-6R. We trust however that they are of assistance to you.

Yours truly,

for Director Financial Industries Division Rulings Directorate