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Draft Pension and Deferred Salary Leave Tax Regulations Released

July 6, 2020

As part of the Government of Canada’s (Government) COVID-19 Economic Response Plan, the Department of Finance Canada announced on July 2, 2020, the release of proposed draft regulations—by way of amendment to the Income Tax Regulations (Draft Regulations)—that are intended to assist sponsors of registered pension plans (RPPs) and deferred salary leave plans (DSLPs) during the COVID-19 pandemic, through the provision of temporary relief from certain Income Tax Act registration requirements and other requirements under the Income Tax Act.

The Draft Regulations address the following matters:

  • Adding temporary stop-the-clock rules to the conditions applicable to DSLPs for the period of March 15, 2020, to April 30, 2021. The purpose of these rules is to ensure that DSLPs applicable to employees who return early from a leave or who defer the start of a leave during the specified period are not subject to premature termination due to non-compliance with the tax requirements for such plans
  • Providing time-limited relief from the restrictions that prohibit an RPP from borrowing money for more than 90 days or as part of a series of loans and repayments
  • Extending the deadline for decisions to retroactively credit pensionable service under a defined benefit plan or to make catch-up contributions to money purchase accounts in an RPP
  • Permitting catch-up contributions to money-purchase accounts in an RPP to be made in 2021 to the extent that 2020 required contributions are reduced
  • For application to 2020, setting aside the 36-month employment condition in the definition “eligible period of reduced pay,” for the purpose of using prescribed compensation to determine benefit or contribution levels in an RPP
  • Allowing wage rollback periods in 2020 to qualify as an eligible period of reduced pay for prescribed compensation purposes under an RPP

The Government’s announcement did not specify when the Draft Regulations would come into effect. However, based on an April 29, 2020, comfort letter from the Department of Finance Canada, the Canada Revenue Agency (CRA) previously indicated that they would permit plan members and administrators to take advantage of the CRA’s longstanding practice of allowing taxpayers to act on proposed tax measures on the assumption that the legislation will be enacted, and specifically noted that plan members can now take advantage of the extension of the April 30 deadline to June 1—or a later date acceptable to the CRA—for eligible periods of reduced pay that ended in 2019. Blakes will continue to monitor developments in this area and will keep you informed of any updates.
For additional information, please reach out to a member of our Pensions, Benefits & Executive Compensation group or your usual Blakes contact.
Please visit our COVID-19 Resource Centre to learn more about how COVID-19 may impact your business.