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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
Is an amount paid by a farmer to his spouse considered a reasonable retiring allowance given that the spouse worked for XXXXXXXXXX years but was unpaid during XXXXXXXXXX years.?
Is an amount paid considered a reasonable bonus?
Position: Yes, in both cases.
Reasons:
For the retiring allowance, it is in accordance with the guideline provided in Question 10 at the Prairie Tax Conference Round Table and prior rulings given in similar circumstances. For the bonus, it is reasonable considering the facts.
XXXXXXXXXX 2003-003675
XXXXXXXXXX, 2003
Dear XXXXXXXXXX:
RE: Advance Income Tax Ruling
XXXXXXXXXX (the "Employee")
XXXXXXXXXX (the "Employer")
This is in reply to your letter of XXXXXXXXXX, requesting an advance income tax ruling on behalf of the above noted-taxpayers. We also acknowledge the information provided during our telephone conversations (XXXXXXXXXX).
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
Facts
1. The Employer and Employee live near XXXXXXXXXX. They deal with the XXXXXXXXXX Tax Services Office and file their income tax returns with the XXXXXXXXXX Tax Centre.
2. The employer and the employee were married in XXXXXXXXXX.
3. The Employer began farming in XXXXXXXXXX, at which time the Employee began full time employment. In XXXXXXXXXX, the employer entered into joint venture farming arrangement with his brother. The conditions of employment did not change.
4. The Employer began paying the Employee an annual wage for the farm work in XXXXXXXXXX, however the employee had provided XXXXXXXXXX years of unpaid labor prior to this date.
5. The employee participated fully in labor and management of the farming operation. Specific tasks included managing the XXXXXXXXXX, equipment operation, bookkeeping, management and administrative tasks.
The nature of her employment was that she was required to always be available for work, with limited notice and no specific shift. During peak season, specifically XXXXXXXXXX, spring seeding, silage and fall harvest, the employee could work seven days a week and up to 16 hours per day.
6. The Employee's compensation for the last 5 years has been as follows:
XXXXXXXXXX.
The average wage that the Employee earned over these 5 years was $XXXXXXXXXX. The Employee has not benefited from any pension plan or deferred profit sharing plan in conjunction with her farm employment.
7. The Employee has provided XXXXXXXXXX years of service to the Employer with unpaid labour for XXXXXXXXXX of those years. The Employee participated fully in the labour and management of the farming operation.
8. The Employer is liquidating his farming operation and will no longer need the services provided by the Employee. The Employee will retire by or on XXXXXXXXXX.
Proposed Transactions
9. The Employer proposes to pay the Employee a retiring allowance of $XXXXXXXXXX for XXXXXXXXXX years of service.
10. The Employee proposes to have the full amount of the retiring allowance transferred into a registered retirement savings plan ("RRSP") pursuant to paragraph 60(j.1) of the Income Tax Act (the "Act").
11. The Employer proposes to pay the Employee a bonus of $XXXXXXXXXX by the end of XXXXXXXXXX.
Purpose of the Proposed Transactions
12. The Employer would like to make payments to the Employee in recognition of the long service she has provided to his farm.
13. To the best of your knowledge and that of the Employer and the Employee, none of the issues involved in this request for an advance income tax ruling:
a) is in an earlier return of the Employer or the Employee or of a person related to the Employer or the Employee;
b) is being considered by a tax services office or taxation center in connection with a previously filed return of the Employer or the Employee or a person related to the Employer or the Employee;
c) is under objection by the Employer or the Employee or by a person related to the Employer or Employee;
d) is before the courts; nor
e) is the subject of a ruling previously issued by the Income Tax Rulings Directorate.
Rulings Given
Provided that the preceding statements constitute a complete and accurate disclosure of all relevant facts, proposed transactions and purpose of the proposed transactions, and provided that the transactions are completed as proposed, we rule as follows:
A. The amount of $XXXXXXXXXX to be paid to the Employee will qualify as a retiring allowance as defined in subsection 248(1) of the Act and will be included in the Employee's income under subparagraph 56(1)(a)(ii) of the Act in the year in which it is paid.
B. The proposed payment of $XXXXXXXXXX to the Employee's RRSP will be deductible by the Employee pursuant to paragraph 60(j.1) of the Act to the extent permitted therein.
C. The amount of $XXXXXXXXXX will be deductible by the Employer in computing income from the business of farming for the year in which it is paid and will be considered reasonable for the purposes of section 67 of the Act.
D. The amount of $XXXXXXXXXX will be deductible by the Employer in computing income from the business of farming for the year in which it is paid and will be considered reasonable for the purposes of section 67 of the Act.
These rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R5 dated may 17, 2002 issued by the Canada Customs and Revenue Agency, and are binding provided the proposed transactions are completed by XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
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