2020-0849681E5 Deferred salary leave plan

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.

Principal Issues: Impact of COVID-19 on the maximum deferral period and minimum leave period requirements under the DSLP rules.

Position: Pending completion of a Department of Finance review, the CRA will not require employers to terminate an employee’s DSLP for failing to meet either of these requirements.

Author: Doiron, Wayne

Section: Regulation 6801(a)

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                                                                                                        W. Doiron
May 28, 2020


Re: Deferred Salary Leave Plan

The Department of Finance Canada forwarded for our consideration an email dated March 23, 2020, from one of your officials regarding the income tax rules that apply to deferred salary leave plans (DSLPs).

Our comments

This technical interpretation provides general comments about the provisions of the Income Tax Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R9, Advance Income Tax Rulings and Technical Interpretations.

The DSLP rules permit employees to defer salary to fund a leave of absence from their employment, subject to certain conditions. One of these conditions is that the deferral period cannot exceed six years with the leave period beginning immediately afterwards. Another condition is that the leave period must be one continuous period of at least six consecutive months (or three months for certain educational leaves).

We understand that you have had discussions with the Department of Finance Canada about problems that you have encountered in administering DSLPs due to COVID-19. In particular, a number of employees providing essential services have been recalled from their leave before having met the minimum leave period condition. These employees would like to resume their leave once the situation permits. As well, some essential service employees whose DSLP reflects the maximum deferral period will not be able to begin their leave as scheduled, thereby contravening the maximum deferral period condition. Under existing rules, when an employee’s DSLP ceases to meet the income tax conditions, the plan has to be terminated, resulting in all deferred salary paid to the employee and included in their income.

As you know, the Department of Finance Canada is presently considering the concerns that you and others have raised about the impact of COVID-19 on DSLPs. Pending completion of this review, the CRA will not require an employer to terminate an employee’s DSLP for failing to meet either of the above conditions. This administrative position will apply regardless of the reason for deferring the leave or for returning to work. In addition to providing flexibility to health care workers and others providing essential services, it will also accommodate, for example, employees who had planned to travel during their leave but who are now unable to, or who had to return early, because of travel restrictions.

We trust our comments will be of assistance.

Yours truly,


Dave Wurtele
Section Manager
for Division Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

c.c.: Department of Finance Canada

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