As part of the government of Canada’s COVID-19 Economic Response Plan, on July 2 the Department of Finance Canada announced the release of proposed draft regulations that would amend the Income Tax Regulations (draft regulations) in order 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 requirements under the Income Tax Act.

The draft regulations address the following matters:

• Adding 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 and taxation. DSLPs allow employees to defer a portion of their salaries, while actively employed, to fund a leave of absence. Tax is payable on the deferred salary only when paid during the leave period, as long as the DSLP continues to comply with the prescribed requirements
• 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. Specifically, the amendment would permit an RPP to borrow money, including by way of series of loans, after April 2020, provided the loan or series is repaid no later than April 30, 2021. Although, it is important to note that all other borrowing restrictions, including a prohibition on using RPP assets as security for a loan (other than in connection with certain transactions involving real estate), will remain in effect.
• 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.

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