aerial photo of the campus in the fall season

Deferred Salary Leave

On January 1, 1989, Vancouver Island University established a program to allow employees to finance a future leave of absence for educational, recreational or other purposes. This program is separate from the existing contractual assisted leave programs.

To be eligible, an employee must have a regular appointment and have completed a minimum of two years service as a regular employee effective January 1 of the first year of participation in the plan.

Under the Deferred Salary Leave Plan (DSLP), employees may defer receiving a portion of their biweekly salary for not less than two years and up to five years. This deferred portion will then be paid over the period of the leave of absence. The major advantage to employees participating in the DSLP is that the deferred portion of their salary is not taxed until it is paid out.

As with any other government regulated program, there are rules regarding participation, deferral of salary and the actual leave of absence. Only employees whose applications have been approved by the University can participate in the DSLP. Any investment income earned on the deferred portion of salary must be paid out each year as taxable income to the participant. The date of the leave of absence must be selected in advance, must be for a minimum of six consecutive months to a maximum of twelve months, and the employee must return to employment with the University after the leave.

Applications to commence participation in the plan effective January 1 must be received by the Human Resources Office before the previous December 15. Employees interested in participating in the DSLP should contact the Payroll Office to obtain applications and further information.

Introduction

The Deferred Salary Leave Plan is a vehicle provided by Vancouver Island University to eligible employees through which they may defer a portion of their biweekly regular salary exclusively for the purpose of financing a future unpaid leave.

The Plan is authorized by Canada Revenue Agency (CRA) under Section 248 of the current Income Tax Act and the broad guidelines under which such a Plan may operate are contained therein.

The objective of the Plan is to provide the opportunity for regular employees of the University to plan a leave for educational, recreational or any other personal purpose and to save for an unpaid leave using before tax dollars over a maximum period of five years.  **Monies received while on Deferred Salary Leave represent taxable income and a T4 will be issued for the year(s) in which payments are received.**

The University recognizes the value of renewal, upgrading and the freedom of choice in offering the Plan to its employees.

Overview

An eligible employee will apply through his/her supervisor (Dean, Director or Regional Campus Principal) for permission to take a leave to be completed no later than seven calendar years from start of participation in the Plan. The employee will identify the duration of the leave and the amount (percentage) of regular salary to be saved (before tax) in the Plan, over a maximum period of five years. The minimum deduction in any calendar year is 10% of regular salary while the maximum deduction is 33.33%.

The Trustee will cause appropriate investments to be made over the period in which the employee is saving for the leave. Interest income from the investments will be paid to the employee on an annual basis. (This interest income cannot be accrued and is taxable income for the year in which it is received.)

The employee will go on an unpaid leave subject to conditions contained in the Plan and in the appropriate collective agreement or employment conditions and will receive the total amount of his/her investment from the Trustee through the Vancouver Island University payroll system.

Under CRA regulations, the employee must return to the University after the leave for a period at least equal to the length of the leave, so cannot be used to transition into retirement.

Eligibility

The Deferred Salary Leave Plan is available to all employees who hold a regular ongoing appointment and have a minimum of two complete years of service as a regular employee prior to January 1 of the first year of participation in the Plan.

An employee may re-enroll in the Plan in the year following a twelve-month period after the return from a leave under this Plan.

Application to Participate in the Plan

During the period October 1 to November 30 each year, applications to participate in the Plan will be submitted to the senior administrator/Provost after having been endorsed as seen by the employee’s immediate supervisor. Completed applications must be submitted to the Payroll office by December 1.

Participation in the Plan will always begin on January 1 of any year.

Subject to compliance with CRA guidelines and the provisions of the Plan, the University will endeavour to grant the application. Only in cases of rare operational difficulty will an application not be granted.  Such cases would include a proposed leave coinciding with a unique need for the employee to be present at the University or where an unreasonable number of simultaneous leaves in the same department are proposed. Such a situation would result in discussion with the employee(s) to resolve the matter. In all applications, the senior administrator’s decision is final (see also Deferral of Leave).

Application will be made on the standard application form and must include the precise dates of the proposed leave and the details of the savings plan. The Deferred Salary Application Form is available online on the Payroll Forms webpage.

Duration of Leave

CRA regulations state that a leave must be of a minimum six months and maximum twelve months duration and must be completed by December 31 of the seventh year of enrolment in the Plan. Otherwise, the balance of the investment will be paid out by the Trustee on that date and will require to be accounted for as income by the employee.

Deferral of Leave

A one-time deferral of the planned leave is permitted and may be requested by the employee or by the University in exceptional circumstances and will not be unreasonably refused by the other party. Such deferral will be arranged so as to allow completion of the leave within seven years of enrolment in the Plan.

Acceleration of Leave

Acceleration of the proposed leave is not provided for in the Plan.

Resignation from the Plan

Resignation from the Plan is permitted in the following circumstances:

  1. Death of the employee,
  2. Employee ceases to be employed by the University,
  3. Voluntary resignation.

The above resignation provisions are built into the Trust Agreement under which Plan contributions are held and invested. However, arrangements for the payout of accrued interest and principal will be subject to the policies of the Trustee, including 35 days notice, and any payout will be taxable income for the year in which it is received.

Savings Plan

The savings plan will not be less than two years and will not normally extend beyond December 31 in the fifth year of enrolment in the Plan, unless a one-time interruption of savings (to a maximum of one year) is requested by the employee. A percentage to be applied to each year, between 10% and 33 1/3%, will be identified on the application and the aggregate of percentages may not exceed 100% in any case.

Assisted or unassisted leaves available to employees under the appropriate collective agreement or contract for excluded staff will not constitute interruption of employment as far as the Plan is concerned, but may have an effect on a savings plan.

Changes to savings plans (i.e. extension, increase) will only be enacted on January 1 of each year and must be requested by the employee, in writing, by December 1 of the preceding year.

Plan Interruption

For any reason, an employee may request, in writing, that the savings plan be interrupted for a maximum period of one year. However, such action may limit the right to defer the leave in order to have it completed within seven years.

Employment Status During Leave

During the period of the leave under this Plan, the employee will be considered to be on unpaid leave. During the period of the leave the employee may not receive any remuneration from Vancouver Island University. This is an Income Tax Act regulation.

Seniority Status - Seniority accrual for BCGEU, CUPE and MFA employees is based on current contractual provisions.

Vacation Accrual - Accrual is based on time worked in affected year. (Normally, accrued vacation will be used prior to the commencement of Deferred Salary Leave; however, utilization may be related to operational needs for program offerings.)

Increments - Employees on Deferred Salary Leave may not be entitled to normal incremental progression. Such adjustments depend on relevant contract language.

Employment Insurance (EI)/Canada Pension Plan (CPP) Contributions

EI premiums are based on the employee’s gross salary before deferrals during the period of deferral and no premiums are withheld from the deferred amounts when paid to the employee during the leave period. (Revenue Canada Ruling, Dec.12/89 & BCTF, Oct.1/90)

CPP premiums are based on the salary the employee receives during both the deferral period and the leave period. The deferred amount is refunded by Co-operators to VIU, who in turn will make the leave payments directly to the employee during the leave.  As a result, the employee is required to pay their portion of CPP and the employer will cover its portion of CPP.

Tax Implications

Income tax during the deferral period will be based on your reduced salary.

Deferred earnings will accumulate interest which will be paid annually to the participant by Co-operators minus the annual administration fee ($50/year). A T4 form will be issued for income tax purposes by Co-operators. The earned interest paid must be included as part of your taxable income in each year.

In the event of an early approved withdrawal from the program, all deferred amounts and accumulated interest must be paid out in the same calendar year as the withdrawal occurs subject to full income tax deduction and reported as taxable income in the year received. Any other deductions as may be required under the Canada Pension Plan, the Employment Insurance Act and any other applicable legislation will be deducted as well.

VIU is not responsible for providing tax advice. Employees will be expected to seek advice with respect to tax concerns from the Canada Revenue Agency or professional tax consultants.

Fringe Benefits

During the leave period, maintenance of benefits will be as provided for unpaid leave in the appropriate collective agreement or conditions of employment).

If benefits are to be maintained, premiums are the sole responsibility of the employee. Prepayment of premiums may be made by post-dated personal cheques and must be kept up-to-date to ensure continuity of coverage.

Out-of-country benefit coverage for the Medical Services Plan cannot exceed 12 months. MSP requires that they be notified of details concerning your absence from Canada. Continuation of Extended Health and Dental coverage is limited to 12 months for employees on leave without pay.

Pension Deductions During Savings Period

Contributions to the Municipal Pension Plan and/or the College Pension Plan are based on gross earnings before allowance for contributions to the Deferred Salary Leave Plan. It is then consistent to calculate the pension benefit using the same gross earnings figure. The definition of ‘earnings’, as outlined in your pension plan, is the key. The gross earnings figure is used in determining contribution amounts and in calculating pension benefits.

Please note that maximum RRSP contribution must be based on the net earnings figures reported on a member’s T4 and not on the grossfigure before allowance for contributions to the Deferred Salary Leave Plan (MacKichan, Investors Group, December, 1989).

Pension Contributions for the Leave Period

If you wish to buy back the service, you must apply to the Pension Corporation through the Payroll office within five years of the end of the leave or within 30 days of ending your employment, whichever occurs first.  You can use the purchase cost estimator to estimate the cost and start the application process by visiting the pension website https://www.pensionsbc.ca/. A lump sum payment of employee and employer contributions plus appropriate interest may be made per BC Pension Corporation regulations.

Beneficiary

It is not necessary to designate a beneficiary when completing forms for Deferred Salary Leave. Upon receipt of a death certificate, the accrued amount of deferred salary will be paid to the employee’s estate.

Trust Fund

All contributions to the Plan will be transferred by the University to a Trust Fund as specified in the Trust Agreement.  The Trust Fund will constitute a fund held by the Trustee and will not form any part of the revenue or assets of the University.

Trustee

The Trustee will cause contributions made to the Plan to be invested in accordance with the directions of the Trust Agreement.

On an annual basis, interest will be paid to the employee on his/her accumulated investment directly from the Co-operators. All interest income paid to an employee is included on a T4 issued by the Co-operators.

The Trustee will make periodic reports, and an annual summary, to each employee detailing the principal amount accrued in the Plan including any interest not yet paid out.

During a participant’s leave, the Trustee will cause the accumulated principal amount to be remitted to the participant in a form and frequency to be agreed between the two parties, through the Vancouver Island University payroll system. A T4 form will be issued to each employee at the end of each calendar year in which a leave is taken.

Administrative Expenses

The University will bear all processing expenses of the Plan except where they may relate to fees of the Trustee in which case they will become a charge to the Trust Fund to be borne by the participants in accordance with the Trust Agreement.

Rights Under the Plan

Neither the University nor any participant in the Plan will pledge or hypothecate any rights under the Plan as security for a loan or for any other purpose.