Relief for employers who sponsor deferred salary leave plans or registered pension plans
Finance has announced new temporary relief measures for employers who sponsor deferred salary leave plans (DSLPs) or registered pension plans (RPPs) for their employees. According to a recent news release dated July 2, 2020, Finance's draft regulations are intended to help employers manage and maintain their employee benefit obligations throughout the COVID-19 pandemic. The relief is also intended to allow employees who participate in DSLPs to suspend or defer their scheduled leave for a limited time without putting their plan at risk. Notably, this DSLP relief formalizes the CRA administrative relief offered earlier this summer while Finance completed its review of the DSLP rules.
This relief would introduce temporary stop-the-clock measures, for the period of March 15, 2020 to April 30, 2021, so that an employee's DSLP does not need to be terminated if the employee suspends a leave of absence to return to work or the employee chooses to delay their paid leave of absence.
Ordinarily, to enjoy the tax deferral benefits available under a DSLP, an employee's deferral period under the plan cannot be longer than six years and the employee's leave of absence must generally be a continuous period of at least six months. If an employee's DSLP ceases to meet these criteria, the plan must be terminated by the employer and all deferred salary must be paid to the employee and included in their income.
The proposed draft regulations include the following relief:
Relaxation of borrowing restrictions
This relief will temporarily allow RPPs to enter into a loan or a series of loans after April 2020, as long as the loan or series is repaid no later than April 30, 2021.
Generally, except for limited circumstances, a registered pension plan is prohibited from borrowing unless such borrowing is limited to a maximum term of 90 days, is not part of a series of loans or repayments and is not secured by property of the RPP under section 8502 of the Income Tax Regulations. This relief effectively extends the maximum 90 day term of allowable borrowings temporarily but does not change the restriction on RPP property being used as security.
Catch-up money purchase contributions in respect of 2020
This relief would permit retroactive contributions to an employee's money purchase account to replace required contributions that were not made in 2020. These retroactive contributions would generally need to be made after 2020 and before May 2021. Where the above conditions are met, the retroactive contributions would be added to the employee's pension adjustment for 2020 to ensure retroactive contributions plus regular contributions in 2021 do not exceed the maximum contribution limit (the pension adjustment limit) for 2021.
Pension coverage during periods of reduced pay
This relief will broaden the definition of "eligible period of reduced pay" to allow RPPs to recognize full pensionable service for more employees experiencing a period of reduced work and pay during COVID-19.
The proposed draft regulations include the following relief for 2020:
For more information, please contact your KPMG advisor.
Information is current to July 14, 2020. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500
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