19(1) 5-9430
A.B. Adler
(613) 957-8962
February 16, 1990Dear Sirs:
This is in reply your letter dated January 11, 1990, and is further to ours of November 27, 1989, concerning our positions with respect to unemployment insurance ("U.I.") premiums and Canada pension plan ("CPP") contributions for participants under deferred salary leave plans.
You indicated your concern with our decision regarding U.I. premiums since it differs from an earlier decision from our Directorate. We presume you are referring to the advance ruling No. E-108 dated October 27, 1982 in which it was confirmed that "Premiums paid to ... the Unemployment Insurance Commission should be based on the Net Amount and the Deferred Compensation Amount". For your information, paragraph 6801(b) of the Income Tax Regulations ("Regulations") applies, since 1986, to the deferred salary leave plan ("Plan") described in Ruling No. E-108. this provision applies to exempt from the requirements of paragraph 6801(a) if the Regulations only those participants under that Plan who entered into the Plan before June 28, 1986 where the relevant deferrals thereunder commenced before 1987, and the Plan was established for the purposes described in paragraph 6801(b) of the Regulations. Further, paragraph 12 of Information Circular No. 70-6R states "where the law upon which a ruling was based changes, the ruling ceases to be valid from the effective date of the law and the taxpayer will not be so notified by the Department."
As indicated in our letter of November 27, 1989 our position with respect to U.I. premiums and deferred salary leave plans was developed in consultation with senior officials at the Department of Justice, Canada, and of other relevant federal departments. Further, our position is consistent with the relevant provisions of the Unemployment Insurance Act, 1971. Given this, we are not able to revise our positions outlined in our letter of November 27, 1989.
Under the existing provisions of the Unemployment Insurance Act, 1971 it is our position that the withholding of U.I. premiums from gross remuneration (including deferred amounts) in a year of deferral applies, since 1986, to a prescribed plan under section 6801 of the Regulations, and to other deferred salary leave plans in existence prior to that date. We suggest that you contact the relevant officials at your local district taxation office to discuss your plan's situation with them. Further, we suggest that you revise your current procedures for collecting U.I. premiums under your Plan.
Concerning the issue of the recovery of employer contributions to the CPP by the employer from a participant under a deferred salary leave plan our position is intended to accommodate such arrangements where a trustee pays the deferred salary to the participant during a period of leave, and to provide some tax relief to the participant. Further, we are not aware of any provision in the Canada Pension Plan that prohibits the recovery of employer contributions from an employee.
Concerning your example where an individual is employed by a company from January to May, then leaves, and is re-employed by the same employer from September to December of same year it is our general position that the employee would be treated as a contributions employee for purposes of determining that employer's C.P.P. contributions in respect of the employee for that year. With respect to your Plan, we suggest that you submit the relevant documents thereunder and a copy of our correspondence to your local district taxation office so that they may provide you with their views whether or not the employer when acting as a trustee under the Plan would be a separate employer for CPP contribution purposes.
We trust that our comments will be of assistance to you.
Yours truly,
for Director Financial Industries Division Rulings Directorate