Can I save on my taxes by taking much-needed time off?

Can I save on my taxes by taking much-needed time off?
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If you’re a highly paid workaholic and you’ve hit your limits for contributions to your RRSP, deferred profit-sharing plan and a taxfree savings account, there is another way to defer taxes that may also improve your health: a deferred salary leave plan (DSLP).

DSLPs are common in sectors that appreciate the restorative benefits of a sabbatical—universities and provincial governments—but much less so in the corporate world.

So how do they work? The plan has to be set up in writing by your employer, and it’s meant to fund a leave of absence. You can set aside up to one-third of your pay each year—meaning you don’t pay income tax on that portion that year. There is no salary maximum.

There are time limits, however. You have to begin the leave within six years after you start contributing. Minimum leave is six months, or three if you become a full-time student at a designated institution.

There is no maximum leave, but you have to pay tax on the whole deferred amount, and any investment returns your contributions earn, by December 31 of the first year of the leave. You also have to return to work for a period at least as long as your leave.

The full rules can be found in Income Tax Regulation 6801. As with anything to do with taxes, it’s best to consult a professional tax adviser and the Canada Revenue Agency. And when you take the leave, try to actually chill.

 

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Edited on 8 May 2017

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