23 August 1989 Income Tax Severed Letter EAC58389 - Deferred Salary Leave Plan

19(1)                                        5-8389
                                             W.C. Harding
                                             (613) 957-3499
August 23, 1989

Dear sirs:

Re: Deferral Salary Leave Plan

This is in reply to your letter of June 24, 1989, referred to us from our Edmonton District Office on July 17, wherein you requested our review and comments on your proposed deferred salary leave plan.

We have reviewed your plan and note some concerns which you should address in order to make the plan fully compatible with section 6801 of the Income Tax Regulations (the"Regulations").

1.       The plan must specifically provide that a participant
         must return to his employment after the leave of absence
         for a period that is not less than the period of the
         leave of absence.  The plan may, if it is desired,
         provide for an employee to return to the employ of
         another employer which participates in the same or a
         similar arrangement.

2.       The plan should provide that all amounts held under the
         plan will be paid out no later than the end of the first
         taxation year of the employee (generally the calendar
         year) that commences after the end of the deferral
         period.

3.       Article 3.4 of the plan and clause 5 of the plan
         agreement (schedule "B") are not in accord with the
         requirements of the Regulations.  First the application
         or non-application of a plan provision should not be
         based solely on the considerations of Revenue Canada,
         Taxation, particularly when alternative courses of
         action based on that consideration are not clearly
         detailed in the plan. 
         Second , subparagraph 6801(1)(iv) of the Regulations
         requires that any income earned by a plan trust in each
         calendar your (clause (A) of the subparagraph) or any
         amount that mat reasonably be considered to have accrued
         to or for the benefit of the employee in a taxation year
         (Clause (B) thereof) must be paid to the employee by
         December 31 of that year.  Paragraph 12(1)(a) of the
         income Tax Act has no application to income paid out of 
         a deferred salary leave plan.

4.       In Article 4.4 and 4.5 of the plan, it is provided that
         "(a) postponement will not move the commencement date of
         the leave beyond six years form the date of enrolment in
         the plan".  The regulations require that his deferral
         period must commence immediately agree a period "not
         exceeding 6 years after the date on which deferrals for
         the leave of absence commence".  This date may or may
         not be the same as the date of enrolment in the plan. 

5.       We also note that the words "subject to clause 4.4 and
         4.5" in the last sentence of Article 4.5 of the plan
         appear to have been added in error.  Please note that he
         length of the deferral period must not exceed 6 years in
         any event.

Provided the plan is amended as noted above, it is our opinion that it will be a prescribed plan under paragraph 6801(a) of the Regulations.

We trust that these comments will be of assistance to you.

Yours truly,

for director Financial Industries Division Rulings Directorate