On May 20, 2021, the Department of Finance Canada announced a one-year extension of draft regulations, initially released on July 2, 2020 (2020 Draft Regulations), that are intended to assist sponsors of registered pension plans (RPPs) and deferred salary leave plans (DSLPs) to manage and maintain benefits for their employees through COVID-19.
The one-year extension announced by the Department of Finance Canada was introduced by way of proposed amendments to the Income Tax Regulations (2021 Draft Regulations), also released on May 20, 2021. For further information on the earlier 2020 Draft Regulations, please see our July 2020 Blakes Bulletin: Draft Pension and Deferred Salary Leave Tax Regulations Released.
The proposed extended temporary amendments to the registration rules and other conditions in the Income Tax Regulations set out in the 2021 Draft Regulations include:
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Adding temporary “stop-the-clock” rules to DSLPs from March 15, 2020, to April 30, 2022. 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
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Providing relief from restrictions that prohibit an RPP from borrowing money for more than 90 days or as part of a series of loans and repayments
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Permitting catch-up contributions to RPPs to be made by April 30, 2022, towards remaining required contributions that otherwise had not been made in 2020 or 2021
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For 2020 and 2021, waiving the requirement that an employee have at least 36 months of employment to qualify for an “eligible period of reduced pay” so that all employees, including new employees, can receive unreduced pension coverage for periods of lay-off or reduced wages
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In cases of wage rollback periods in 2020 and 2021, allowing employers to provide pension contributions at 100 per cent of wages prior to rollback
While the Department of Finance’s announcement did not specify when the 2021 Draft Regulations would come into effect, we understand that it is the Canada Revenue Agency’s longstanding practice to allow taxpayers to act on proposed tax measures on the assumption that the legislation for these measures will be enacted.
