5 September 1990 Income Tax Severed Letter ACC9705 - Self-funded Leave Plan

Mr. Richard Rittenberg
Assistant Deputy Minister
Human Resources Branch                 0-902181
Revenue Canada, Taxation               D.S. Delorey
Ottawa, Ontario                        (613) 957-3495
K1A 0L8
September 5, 1990

Dear Mr. Rittenberg:

Re: Self-Funded Leave Plan (the "Plan")

This is further to our letter of April 5, 1990 concerning your Plan.

In paragraph 2 of our letter, we commented as follows: "Our position on CPP contributions is that such contributions are payable on the net salary during both the deferral period and the leave period. This position, which is reflected in the Plan, is based on the fact that under the CPP Act a trustee is considered to be an employer when paying the deferred amounts to the employee and is thus required to pay the employer's contribution in respect of that employee."

The above quote contains the comment that the trustee is deemed to be an employer of the employee by the CPP Act. This is to clarify that 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 the year of $200 on behalf of the employee, plus the employer's portion.

It is our understanding that the above procedures also apply where Quebec pension plan contributions are concerned.

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 the 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