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Extension of temporary tax relief for COVID-19

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Extension of temporary tax relief for COVID-19

June 24, 2021

On May 20, 2021, the federal Ministry of Finance proposed to extend certain COVID-19 pandemic-related tax relief measures that would extend certain measures introduced previously to provide temporary relief from various tax rules applicable to pension plans and deferred salary leave plans (DSLPs).

Relaxation of pension plan borrowing restrictions

The existing restrictions that prohibit pension plans from borrowing money for periods of more than 90 days (with certain exceptions) will continue to be eased, permitting pension plans to enter into loan agreements after April 2020, provided they are repaid by April 30, 2022. 

Pension coverage during periods of reduced pay

Tax rules permit a pension plan to recognize eligible periods of reduced pay as fully pensionable periods of service (within certain limits). The proposals would extend through 2020 and 2021 the waiver of the condition that employees be employed for at least 36 months to qualify.   The employer may also provide full pension coverage in respect of employees who have taken temporary pay decreases in 2020 and 2021.

Catch-up money purchase contributions for 2020 and 2021

The measures also extend the period in which retroactive catch-up contributions to an employee’s defined contribution (DC) account are permitted. Such retroactive contributions were following contribution reductions, regardless of whether the employee had reduced employment service or reduced pay. Employees are required to make a retroactive contribution (or a written commitment to make the contribution) in respect of 2020 and/or 2021 before May 2022. Employers are required to make retroactive contributions in the same period, or later if matching an employee contribution.

The retroactive contribution will be added to the employee’s pension adjustment (PA) for the year in which the contribution would otherwise have been made.

Deferred salary leave plans

Employees who participate in DSLPs are permitted to defer part of their salary over a number of years to fund a paid leave of absence provided:

  1. The deferral period is not longer than six years; and
  2. The leave of absence is a continuous period of at least six months.

The deferred salary they receive during the leave of absence is taxable.

However, during the COVID-19 pandemic, some DSLP participants were recalled to work while on leave, before reaching the minimum six month requirement. Others have been unable to begin their leaves of absence as planned.

Under existing tax rules, if an employee’s leave does not meet the prescribed conditions for a DSLP, the plan must be terminated and the deferred salary must be paid to the employee and reported as income for tax purposes.

The government now proposes to extend its temporary “stop-the-clock” rules to April 30, 2022 so that DSLP participants who postponed leaves of absence due to COVID-19 will not face adverse tax consequences for staying in their jobs during the pandemic. The measure would mean that a DSLP does not need to be terminated if an employee suspends or delays a paid leave of absence.

The effects of the proposed extension measure would be as follows:

  • If an employee on a leave of absence returns to work on or after March 15, 2020, and subsequently resumes the leave of absence before May 1, 2022, the two leave periods will be considered one consecutive leave of absence.
  • If an employee resumes a leave of absence in 2021, the deferred salary must be fully paid by the end of 2022. If an employee resumes a leave of absence in the first half of 2022 (i.e., no later than April 30th), the deferred salary must be paid in full by the end of 2023.
  • If an employee has not yet started a leave of absence and the deferral period is to exceed the six-year limit at some point between March 15, 2020 and April 30, 2022, the deferral period will be extended by up to 26 months.


These proposals extend similar initiatives that were initially announced on July 2, 2020. CRA practice is that taxpayers may act on the assumption that proposed tax measures will be enacted.

These proposed amendments are designed to assist employers and employees weather the effects of the COVID-19 pandemic.