4 September 1990 Income Tax Severed Letter ACC9698 - Proposed Deferred Salary Leave Plan

24(1)
                                     0-902179
                                     D.S. Delorey
                                     (613) 957-3495
19(1)

September 4, 1990

Dear Sirs:

Re: Proposed Deferred Salary Leave Plan (the "Plan")

This is further to our letter of November 9, 1989 concerning your Plan. In our letter at number 5 on page 2, we stated that Canada pension plan ("CPP") contributions will be based on net salary during both the deferral and the leave period. We are writing to explain the procedures to be followed by the trustee with respect to CPP contributions, as set out below.

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.

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.

If the employee is to pat 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 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.

The trustee will be required to prepare T4s reflecting the amount paid by the trustee to the employees under the Plan 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

Yours truly,

for Director Financial Industries Division Rulings Directorate