COVID-19 Relief for Salary Leave and Pensions

Summary#

These final rules, titled Regulations Amending the Income Tax Regulations (COVID-19 – Relief for Deferred Salary Leave Plans and Pension Plans), give temporary tax and timing relief for some deferred salary leave plans and registered pension plans because of COVID‑19 disruptions. They took effect on the day they were made (June 10, 2021) and were published in the Canada Gazette on June 23, 2021.

What it does#

• Deferred salary leave plans (DSLPs)

  • Treats a leave that was suspended on or after March 15, 2020 and that resumes on or before April 30, 2022 as one continuous leave. This avoids automatic plan termination and immediate taxation for many employees who were recalled to work.
  • Extends the maximum deferral limit so that a deferral that would have exceeded six years during the period March 15, 2020 to April 30, 2022 is read as up to eight years.
  • If a suspended leave resumes in 2020, deferred pay must be paid by the end of 2021; if it resumes in 2021, payment by the end of 2022; if it resumes in 2022, payment by the end of 2023.

• Registered pension plans

  • Extends some reporting deadlines for retroactive benefits tied to a period of reduced service that ended in 2019, to June 1, 2020 (or a later date accepted by the Minister).
  • Allows certain “catch-up” (retroactive) contributions for defined contribution (money purchase) plans to be made after 2020 and on or before April 30, 2022, or to be promised in writing by that date. There are conditions about who pays and when, and these contributions are treated for pension-adjustment reporting as if they had been made in the earlier year.
  • Temporarily changes the definition of an “eligible period of reduced pay” for 2020 and 2021 by:
    • removing the requirement that the employee have been employed for 36 months before the period, and
    • not requiring the pay reduction to match a reduction in hours or services.
  • Eases short-term borrowing rules so plans that take loans after April 2020 and before February 2022 do not have to meet the usual 90 days maximum term or series restrictions, provided the borrowing is repaid by April 30, 2022.

Who's affected#

• Employees who participate in deferred salary leave plans (DSLPs) — for example, staff at universities and public-sector employers — especially those who were recalled from leave or who delayed starting their paid leave because of the pandemic.
• Sponsors and administrators of registered pension plans, including both defined contribution (money purchase) and defined benefit plans.
• Small employers that sponsor pension plans — the government estimated up to 5,000 small businesses could benefit.
• The rules are administered by the Canada Revenue Agency.

Why it matters#

• For DSLP participants, the rules prevent an unexpected tax bill if a leave was interrupted by COVID‑19 and later resumed. That keeps deferred pay taxable when it is actually paid, not earlier because of an interruption.
• For pension plans, the changes let employers and members keep recognizing pension service and make catch-up contributions after pandemic disruptions without breaking tax rules. That helps protect retirement benefits and gives sponsors short-term flexibility.
• The temporary borrowing relief helps plans manage cash flow and meet benefit payments during volatile markets.
• These measures are temporary and tied to the pandemic period (generally covering interruptions from March 15, 2020 to April 30, 2022), and they came into force on June 10, 2021.