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.
Principal Issues: (A) Does an amount to be paid qualify as a retiring allowance as defined in subsection 248(1) of the Act? (B) Will the recipient be entitled to a deduction under paragraph 60(j.1) of the Act? (C) Is the amount of the retiring allowance a reasonable expense under section 67 of the Act?
Position: Yes, for all three issues listed (A, B and C)
Reasons: In accordance with the guideline provided in Question 10 at the 1992 Prairie Tax Conference Round Table and prior rulings given in similar circumstances.
XXXXXXXXXX 2003-005147
XXXXXXXXXX, 2004
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling - XXXXXXXXXX . (the "Taxpayer")
XXXXXXXXXX ("Employee 1")
XXXXXXXXXX ("Employee 2")
XXXXXXXXXX ("Employee 3")
XXXXXXXXXX ("Employee 4")
XXXXXXXXXX ("Employee 5")
XXXXXXXXXX ("Employee 6")
This is in reply to your letter of XXXXXXXXXX and facsimiles of XXXXXXXXXX, requesting an advance income tax ruling on behalf of the above-named taxpayer and employees. We also acknowledge the information provided during our telephone conversations (XXXXXXXXXX).
We understand that, to the best of your knowledge and that of the Taxpayer, none of the issues involved in the ruling request is:
(i) in an earlier return of the Taxpayer or a related person,
(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the Taxpayer or a related person,
(iii) under objection by the Taxpayer or a related person,
(iv) before the courts, or
(v) the subject of a ruling previously issued by the Directorate to the Taxpayer or a related person.
Except as otherwise noted, all statutory references in this document are references to the provisions of the Income Tax Act of Canada, R.S.C. 1985 (5th Supp.) c.1, as amended to the date hereof (the "Act").
Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:
Facts
1. The Taxpayer is a taxable Canadian corporation within the meaning of subsection 89(1) of the Act, incorporated on XXXXXXXXXX. Its business number is XXXXXXXXXX and it deals with the XXXXXXXXXX Tax Services Office and XXXXXXXXXX Taxation Centre.
2. The above-mentioned Employees 1 to 6 (hereinafter collectively referred to as the "Employees") are also the only shareholders of the Taxpayer and they are a non-arm's length group of individuals. They file their individual tax returns with the XXXXXXXXXX Tax Centre and the XXXXXXXXXX Tax Services Office, except for Employee 6 who now deals with the XXXXXXXXXX Tax Services Office.
3. The Taxpayer commenced the farming operation in XXXXXXXXXX and actively carried on the business of farming and XXXXXXXXXX in XXXXXXXXXX until XXXXXXXXXX. The Employees commenced employment with the Taxpayer in XXXXXXXXXX and continued to be employed until the farming operations ceased in XXXXXXXXXX.
4. During the period of employment with the Taxpayer, the Employees participated in the management of the farming operation and performed various individual duties such as the maintenance of the accounting system, the maintenance and operation of the farming equipment, sales contract negotiations, corporate decision making, etc.
5. Annual amounts of remuneration paid to each of the Employees varied, depending on the Taxpayer's cash flow. In certain years, some of the Employees did not receive any remuneration. From XXXXXXXXXX to XXXXXXXXXX inclusive, total remuneration paid to the Employees was approximately $XXXXXXXXXX and only Employee 1 received salary throughout each of the years XXXXXXXXXX to XXXXXXXXXX.
6. The Employees were not employed elsewhere on a full-time basis between the years of XXXXXXXXXX and XXXXXXXXXX. However, during one XXXXXXXXXX period (XXXXXXXXXX) Employee 5 supplemented his income with external full-time employment. During that time however, he continued to perform his regular duties on the farm.
7. The Employees have no entitlements under any registered pension plan or deferred profit sharing plan as a result of their employment with the Taxpayer.
8. During XXXXXXXXXX, the Taxpayer ceased the farming and XXXXXXXXXX business. All of the salvageable farming equipment has presently been sold.
Proposed Transactions
9. The Taxpayer purposes to sell the XXXXXXXXXX plant and surrounding property. When all of the business assets have been sold, the Taxpayer proposes to wind-up the corporation.
10. The Taxpayer proposes to pay each of the Employees a retiring allowance that will not exceed $XXXXXXXXXX.
11. The Employees each propose to contribute the full amount of the retiring allowance to an RRSP of which each is the annuitant, pursuant to paragraph 60(j.1) of the Act.
Purpose of the Proposed Transactions
12. The Taxpayer would like to pay each one of the Employees a retiring allowance in recognition of their long service.
Rulings Given
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, and provided the transactions are completed as proposed, we rule as follows:
A. The amount up to $XXXXXXXXXX to be paid to the Employees will qualify as a retiring allowance as defined in subsection 248(1) of the Act, and will be included in their income under subparagraph 56(1)(a)(ii) of the Act in the year in which it is paid.
B. The Employees will be entitled to deductions under paragraph 60(j.1) of the Act to the extent permitted by that paragraph on the subsequent contribution of the retirement allowance to an RRSP of which they are the annuitants.
C. Subject to paragraph 18(1)(a) of the Act, the retiring allowance proposed will be considered reasonable for purposes of section 67 of the Act and will be deductible in computing business income of the Taxpayer for the year in which it is paid.
These advance income tax rulings, which are based on the Act and Regulations in their present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R5 Advance Income Tax Rulings, dated May 17, 2002, and are binding on the Canada Revenue Agency provided that the proposed amounts described in 8 above are paid on or before XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2004
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2004
Email this Content