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:
Is a payment a retiring allowance
Position:
No.
Reasons:
The amount does not meet the terms of paragraph (a) of the definition of a retiring allowance under 248(1) and, in our opinion, does not satisfy the requirements of paragraph (b) following our general interpretation of that provision. In particular, it is our opinion, that the employee was assured of continued employment with the employer at all times so that it cannot be said he lost his job.
January 8, 2001
CALGARY TAX SERVICES OFFICE HEADQUARTERS
Mr. Reid Corrigal W.C. Harding
Director (613) 957-8953
Attention: Betty Ann Jenner
Problem Resolution
2000-005365
XXXXXXXXXX
This is in reply to your Memorandum of October 23, 2000, in which you asked us to consider the submissions made on behalf of XXXXXXXXXX in respect of a payment received by him in XXXXXXXXXX, and whether it was a retiring allowance.
Facts:
XXXXXXXXXX.
XXXXXXXXXX representative in this matter, takes the position that the payment is a retiring allowance because it was paid with respect to XXXXXXXXXX loss of employment. He indicates that he is aware of the Agency's position expressed in paragraph 3 of IT-337R3, entitled Retiring Allowances, but is of the view it has no application in this situation.
Paragraph 3 of IT-337R3 provides that a loss of office does not include:
a termination of employment followed by re-employment with the employer pursuant to an arrangement made prior to the termination, or
a termination where salary and benefits continue to accrue to a later date.
XXXXXXXXXX provides, his opinion on the meaning of the terms "pursuant to","an arrangement" and "made prior" as these words are used in paragraph 3 of IT-337R3 and why they are not applicable to XXXXXXXXXX situation. While XXXXXXXXXX comments on the meaning of the term "pursuant to" are a bit confusing, his basic argument is that XXXXXXXXXX was terminated on XXXXXXXXXX with effect on XXXXXXXXXX, and that there was no arrangement for his re-employment in place prior to the termination of his employment. First, XXXXXXXXXX argues that the offer of continued employment made on XXXXXXXXXX was a unilateral, non-negotiable offer and not an arrangement. He then states that although it was first presented to XXXXXXXXXX on XXXXXXXXXX, it was not accepted by XXXXXXXXXX until after or concurrent with XXXXXXXXXX acceptance of the terms of the Release. Accordingly, it was not made prior to XXXXXXXXXX termination.
We do not agree with XXXXXXXXXX position. In our opinion, XXXXXXXXXX contract of employment was terminated and concurrently replaced by a new contract of employment containing new terms of employment. XXXXXXXXXX did not as a result of the termination suffer a loss of employment as contemplated by the Act or as described in Interpretation Bulletin IT-337R3. Furthermore, even if the termination of the contract resulted in a termination of the employment we would not accept that XXXXXXXXXX was not employed by XXXXXXXXXX at all material times because the termination of the old agreement and commencement of the new agreement were concurrent. Finally, XXXXXXXXXX had compete assurance of continued employment prior to the termination of the contract and the Agency has a long standing position that a termination cannot occur if there is an assurance of continued employment.
While the above comments reflect our position on this matter, we have reviewed XXXXXXXXXX comments and offer the following additional comments thereon.
In his letter of October 10, 2000, XXXXXXXXXX expands on his prior letter to suggest that the change in the terms of the employment contract should not be treated as a continuation of employment because the terms of the new employment are substantially different from those contained in the prior contract. In particular, XXXXXXXXXX indicates that retirement age, severance entitlements and availability of a company vehicle represent some of the key changes. In our opinion, these modification of the terms do not represent significant changes to the contracts and do not support a position that the original employment of XXXXXXXXXX was lost.
XXXXXXXXXX then notes that XXXXXXXXXX could not have been "rehired" unless he was first "terminated". Accordingly, he argues, there must have been a "loss of employment". As noted in paragraph 3 of IT-337R3, the term "loss of an office or employment does not include: ... termination of employment with an employer followed by re-employment with the employer..." (underline added). In other words, the Agency recognizes that a factual termination and re-employment may occur. However, for purposes of applying the term "loss of an office or employment" as that term is used in the Act, we do not agree that it includes a termination that is followed by re-employment with the same employer.
The October 10th letter also notes that we have taken a position in our file 9730465 that a payment will qualify as a retiring allowance if at the time of retirement the employee has no assurance of being rehired but is aware that he may be rehired. In this respect, XXXXXXXXXX concludes that there was a short "period" of time when XXXXXXXXXX was not employed and in which he had no prior knowledge of being rehired.
As indicated in the paragraph quoted by XXXXXXXXXX, the Agency does take the position that a retiring allowance may be paid in situations where the employee has no assurance of being rehired but is aware that he "may" be rehired. However, the paragraph has no application where there is an assurance of employment. In the situation at hand, XXXXXXXXXX was provided with an unconditional offer of continued employment on XXXXXXXXXX. In our opinion, this offer provided XXXXXXXXXX with substantial assurance, prior to his retirement, that he would be rehired should he elect to accept the terms of the new agreement. We therefore do not agree that the paragraph has any application to his situation.
The above position was discussed with XXXXXXXXXX during a recent telephone conversation (Harding/XXXXXXXXXX) and it was noted that reference to this position was made in the Agency's Technical News Number 7 where it was specifically noted that the Agency considers "offers of new employment [with an affiliate]" to be similar to an assurance of employment. XXXXXXXXXX responded to that conversation in a letter of November 24, 2000. Basically, XXXXXXXXXX argues that the comments on Retiring Allowances contained in Technical News Number 7 were made with respect to comments made in Interpretation Bulletin IT-337R2 which was superseded by IT-337R3 and accordingly have no application.
One of the purposes for the publication of comments in the Technical News is to clarify the comments made in the previous version of the Interpretation Bulletin prior to its revision. The first paragraph of the commentary under the heading "Retiring Allowance" indicates that the commentary was a summary of recent positions we have taken on the interpretation of the definition of "retiring allowance" in subsection 248(1) of the Income Tax Act. In other words, it is not necessarily a clarification of comments made in the prior bulletin but a presentation of decisions that had an impact on its commentary.
The Agency has and continues to take the position that a unilateral offer of employment made prior to a termination of employment constitutes an assurance of employment. This was our position both before the publication of IT-337R3 and it continues to be our position.
An additional representation made by XXXXXXXXXX is that a number of employees were terminated by XXXXXXXXXX in similar circumstances. Several declined the offer of new employment while others accepted. XXXXXXXXXX states that the amounts paid to the persons declining the offer are clearly retiring allowances and that it would be equitable to treat all the payments in the same manner. He further argues that because of the change in the terms of the contracts there will be no future opportunity for the employees to receive the same treatment at a later date.
As discussed above, there must be a loss of employment before the payment of any of these amounts can be treated as retiring allowances. Where persons have declined the employment offer, this condition is satisfied but; where they have agreed to continue their employment, it is not satisfied. In our view, there is no means of avoiding the latter result in this particular situation.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Department's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at 613 957-0682. The severed copy will be sent to you for delivery to the client.
Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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