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: Is a payment in lieu of reasonable notice of termination a retiring allowance.
Position: No.
Reasons: Our position is that it is income from employment.
XXXXXXXXXX 2004-006914
J. Gibbons, CGA
June 14, 2004
Dear XXXXXXXXXX:
Re: Wages in Lieu of Termination Notice
This is in reply to your email dated March 30, 2004, concerning the income tax treatment of an amount paid to an employee in lieu of a termination notice. In particular, you wish to know whether this payment can be considered a "retiring allowance," as that term is defined is subsection 248(1) of the Income Tax Act.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and the subject matter of a request for an advanced income tax ruling submitted in the manner set out in Information Circular 70-6R5. However, we have provided some general comments below, which we hope will be of assistance to you.
The Canada Revenue Agency's general views relating to "retiring allowances" is set out in Interpretation Bulletin IT-337R4, Retiring Allowance, a copy of which can be obtained on our website at www.ccra-adrc.gc.ca.. As indicated in paragraph 14 of that bulletin, it is our view that a termination payment received by an employee in lieu of reasonable notice of termination constitutes income from employment and not a retiring allowance.
In your letter, you have also asked us about the applicability of vacation accrual with respect to a termination payment. This matter is governed by the Ontario Employment Standards Act and you should therefore direct this question to the Ontario Ministry of Labour.
We trust that these comments will be of assistance.
Yours truly,
Roxane Brazeau-LeBlond, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
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