5 September 1990 Income Tax Severed Letter ACC9692 - Deferred Salary Leave Plan

24(1)                              0-902183
                                   D.S. Delorey
                                   (613) 957-3495
                                   C-9692
19(1)

September 5, 1990

Dear Sirs:

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

This is further to our letter of April 9, 1990 concerning your Plan.

In our letter at number 4 page 2, we commented as follows with respect to Canada pension plan ("CPP") contributions:

          "CPP contributions will be based on net salary 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.  If
          the employee is to pay 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."

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 by required to deduct and remit CPP contributions for the year of $200 on behalf of the employee, plus the employer's portion.

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 o 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 by 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)953-8179 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