9 April 2003 External T.I. 2003-0007875 - DSLP SALARY DURING PERIOD OF LEAVE

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 CCRA.

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

Principal Issues:

Where an employer pays its employees in one week (payroll period) for the employment services rendered in the previous week (payroll period), will the receipt of salary or wages in the first week of the leave of absence for the services rendered in the employee's last week of employment before the leave of absence offend subparagraph 6801(a)(iii) of the Regulations?

Position: No.

Reasons:

Subparagraph prohibits salary and wages earned from the employer or a non-arm's length person or partnership during the period of leave other than the exceptions in clauses A and B of subparagraph 6801(a)(iii).

XXXXXXXXXX 				2003-000787
G. Kauppinen
April 9, 2003

Dear XXXXXXXXXX:

Re: Deferred Salary Leave Plan

This is in reply to your letter dated March 5, 2003 regarding the application of subparagraph 6801(a)(iii) of the Income Tax Regulations ("Regulations").

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the Canada Customs and Revenue Agency ("CCRA"). All publications referred to herein can be accessed on the CCRA website at the following address: http://www.ccra-adrc.gc.ca/tax/technical/incometax/menu-e.html.

Loosely paraphrased, subparagraph 6801(a)(iii) of the Regulations says that the employee is not to receive any salary or wages from the employer (or non-arm's length parties or partnerships) other than the salary or wages that the employer has deferred during previous periods and reasonable fringe benefits.

This is to confirm that amounts that were earned prior to the commencement of the leave of absence but are paid during the leave of absence simply because the employer pays its employees in one week (payroll period) for employment services provided in the previous week (payroll period) will not, in and by itself, offend subparagraph 6801(a)(iii) of the Regulations. Similarly, subparagraph 6801(a)(iii) will not be offended if commissions in respect of a calendar quarter are paid after the quarter is completed even though the actual payment may occur during the time that a leave of absence under paragraph 6801(a) of the Regulations has begun.

We trust our comments will be of assistance to you.

Yours truly,

Mickey Sarazin, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch