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: 1) Do the proposed amounts to be paid qualify as retiring allowances as defined in subsection 248(1) of the Act?
2) Are the proposed amounts a reasonable expense under section 67 of the Act?
Position: 1) Yes 2) Yes
Reasons: Complies with applicable provisions of the Income Tax Act and we have given similar rulings.
XXXXXXXXXX 2004-009351
XXXXXXXXXX , 2004
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling - XXXXXXXXXX . (the "Employer")
This is in reply to your letters of XXXXXXXXXX, requesting an advance income tax ruling on behalf of the above-named taxpayer. We also acknowledge the information provided during our telephone conversations (XXXXXXXXXX).
We understand that, to the best of your knowledge and that of the Employer, none of the issues involved in the ruling request is:
(i) in an earlier return of the Employer 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 Employer or a related person,
(iii) under objection by the Employer or a related person,
(iv) before the courts, or
(v) the subject of a ruling previously issued by the Directorate to the Employer 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:
Definitions
"Affiliate" means any related or associated corporation, or any corporation that is a member of a group of corporations or any corporation that is a member of a group of corporations that do not deal at arm's length.
"Bargaining Unit" means the XXXXXXXXXX.
"Collective Bargaining Agreement ("CBA")" means the agreement entered into on XXXXXXXXXX, between the Employer and the Bargaining Unit.
"Contract Period" means the period between XXXXXXXXXX, and XXXXXXXXXX.
"Eligible Employees" means employees of the Employer who are members of the Bargaining Unit and who have attained the age of XXXXXXXXXX and over during the Contract Period.
"Private Corporation" has the meaning assigned by subsection 89(1) of the Act.
"Taxable Canadian Corporation" has the meaning assigned by subsection 89(1) of the Act.
"Years of Service" means the continuous employment with the Employer on a permanent full-time basis without interruption for temporary suspension of employment, periods of lay-off from employment, authorized leaves of absence and long-term disability and workplace safety insurance board related absences. Years of service are calculated as the number of years or part years of continuous employment from an employee's start date with the Employer (on or after XXXXXXXXXX) to the actual month of retirement.
Facts
1. The Employer is a Private Corporation and a Taxable Canadian Corporation. Its business number is XXXXXXXXXX and is serviced by the XXXXXXXXXX Tax Services Office and XXXXXXXXXX Taxation Centre. The Taxpayer's address is XXXXXXXXXX.
2. XXXXXXXXXX.
Proposed Transactions
3. Pursuant to the CBA, the Employer proposes to pay to its Eligible Employees a retirement supplement which consists of a retirement allowance and an early retirement incentive that are based on retiring age and contract year.
4. Eligible Employees who retire during the Contract Period will receive a retirement allowance calculated by Years of Service. The retirement allowance shall take the form of a voluntary severance in a lump sum.
5. Eligible Employees aged XXXXXXXXXX who retire during the Contract Period will receive an early retirement incentive calculated by Years of Service. The early retirement incentive shall take the form of a voluntary severance in a lump sum.
6. The retirement allowance ranges from $XXXXXXXXXX to $XXXXXXXXXX per year of service, depending on age attained at retirement. The early retirement incentive ranges from $XXXXXXXXXX to $XXXXXXXXXX per year of service, depending on the age attained on XXXXXXXXXX.
7. An Eligible Employee who retires or voluntarily chooses to retire during the Contract Period of the CBA will not be re-employed with the Taxpayer, on a full-time or part-time basis, or employed with an Affiliate of the Taxpayer.
Purpose of the Proposed Transactions
8. The Employer would like to pay the Eligible Employees a retirement allowance in recognition of their long service. The Employer's intention in introducing the proposed arrangement is to supplement by means of lump sum payments at retirement, the periodic amounts each Eligible Employee will receive under the terms of the pension plan for Eligible Employees of the Employer.
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 retirement allowance and early retirement incentive, as described in 4 and 5 above, respectively, to be paid to the Eligible 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. Subject to paragraph 18(1)(a) of the Act, the retirement allowance and early retirement incentive proposed will be considered reasonable for purposes of section 67 of the Act and will be deductible in computing business income of the Employer 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 transactions described in 3 to 5 above are completed 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