Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: 1) Would a payment entitlement on losing your elected municipal office constitute a retiring allowance for purposes of the Act? 2) Would a portion of a retiring allowance qualify as a municipal officers' expense allowance under subsection 81(3) of the Act?
Position: 1) Question of fact. 2) No.
Reasons: 1) Whether a payment is in recognition of long service or for loss of office can only be determined after a review of all of the relevant facts. 2) Municipal officers' expense allowances are generally computed based on a percentage of salary and other remuneration; retiring allowance would not be considered salary and other remuneration.
XXXXXXXXXX 2000-001457
M. P. Sarazin
Attention: XXXXXXXXXX
May 3, 2000
Dear Sirs:
Re: Elected Positions and Payments on Termination
This is in response to your letter dated March 13, 2000, wherein you requested the views of the Canada Customs and Revenue Agency (the "Agency") regarding certain payments made to municipal elected officials upon their leaving office on retirement or electoral loss.
Municipal elected officials are entitled to one month's salary for each year in office to a maximum of six months salary. This salary includes the portion (one third) which is deemed under section 255 of the Ontario Municipal Act to be for expenses incident to the discharge of the person's duties as an elected official and exempted from tax under subsection 81(3) of the Income Tax Act (the "Act"). You ask whether the entitlements paid after retirement or electoral loss would constitute a retiring allowance for purposes of the Act and whether the portion of such amount relating to exempt salary pursuant to subsection 81(3) of the Act (one third) would also be exempt from tax.
Confirmation of the tax consequences associated with completed transactions are provided by the relevant tax services office. Opinions concerning proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. For more information concerning advance tax rulings, please refer to Information Circular 70-6R3 dated December 30, 1996, issued by the Canada Customs and Revenue Agency (the "Agency"). Copies of information circulars and interpretation bulletins are available from your local tax services office or on the Internet at the following site - http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. However, we can provide you with the following general comments.
The Agency's long-existing policy in respect of the interpretation and application of subsection 81(3) of the Act is described in Interpretation Bulletin IT-292. As noted in paragraph 3 of IT-292, the first step in determining the amount that may be excluded under subsection 81(3) of the Act is to compute the total amounts received from the municipal corporation or body that employed the individual. In this regard, the individual may include salary, fees, indemnities, honoraria, general expense allowances and any mileage and travelling allowances received in the year. Consequently, the exclusion is generally based on the individual's salary and other remuneration which represent amounts described in section 5 and 6 of the Act. Paragraph 6 of IT-292 provides the Agencies views with respect to the determination of the amount of any expense allowance that does not have to be included in income under subsection 81(3) of the Act.
The Agency's general views regarding retiring allowances are found in Interpretation Bulletin IT-337R3. As noted in paragraph 2 of IT-337R2, a retiring allowance is defined to mean an amount received on or after retirement of a taxpayer from an office or employment in recognition of the taxpayer's long service or an amount received in respect of a loss of office or employment of a taxpayer. A retiring allowance is included in an individual's income under subparagraph 56(1)(a)(ii) of the Act as other income. The determination of whether a specific payment would constitute a retiring allowance for purposes of the Act is a question of fact that could only be determined after a review of all of the relevant facts.
Where an amount received constitutes a retiring allowance for purposes of the Act, it is our view that no part is exempt from tax even though the basis for calculating the amount of the retiring allowance includes an exempt amount.
We trust the above comments will be of assistance to you.
Yours truly,
Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy & Legislation Branch
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