4 June 1997 External T.I. 9713275 - DSLP, NOT RETURNING TO WORK

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Whether decision not to return to work after a leave of absence could affect DSLP status?

Position: Yes

Reasons:

Conditions in 6801(a) not satisfied. Tax implications will depend on when conditions no longer satisfied.

	                 	971327
XXXXXXXXXX               	M.P. Sarazin

Attention: XXXXXXXXXX

June 4, 1997

Dear Sirs:

Re: Deferred Salary Leave Plan; XXXXXXXXXX

This is in reply to your letter dated May 15, 1997, wherein you requested our comments with respect to the taxation of amounts that were previously deferred by XXXXXXXXXX under a deferred salary leave plan ("DSLP"). XXXXXXXXXX is scheduled to complete his six month leave period on XXXXXXXXXX and he will not be returning to work as required under the DSLP. XXXXXXXXXX position with XXXXXXXXXX no longer exists so he will retire on XXXXXXXXXX after using the remainder of his vacation.

In your letter you have outlined an actual fact situation and you are seeking information regarding income taxes related to past transactions. The review of such transactions falls within the responsibility of tax services offices. However, we can provide you with the following general comments which we hope will be of assistance.

Where a DSLP meets the conditions in paragraph 6801(a) of the Income Tax Regulations (the "Regulations"), the amounts deferred under the DSLP will be exempt from being considered a salary deferral arrangement and will only be included in a participant's income as the amounts are eventually received under the terms of the plan. Where a condition in paragraph 6801(a) is no longer complied with, the participant would be considered to have terminated or withdrawn his or her participation in the plan. The conditions include a requirement that the employee agree to return to his or her regular employment for a period after the leave of absence at least equal to the period of leave.

The determination of when an individual's participation in a DSLP would be considered to terminate for purposes of the Income Tax Act (the "Act") would require a review of all of the facts relating to each particular case. If it is determined that it was known, at the time an agreement was entered into that the participant would not be returning to work, then the DSLP would not have met the conditions of paragraph 6801(a) of the Regulations and the participant could be reassessed to have deferred amounts included in his or her income in the years that amounts were deferred. If it is determined that the decision not to return was made at a later date but before the leave of absence commenced, we take the view that the agreement would be terminated from that point in time and the participant could be reassessed to have the deferred amounts included in his or her income for that year. Finally, if the decision not to return is made during the period of leave, we would normally accept the payment and reporting of the deferred amount in accordance with the terms of the DSLP. This would be the case whether the decision not to return to his or her regular employment is made by the participant or by the employer.

We trust the above comments will be of assistance to you.

Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch