19 June 2007 External T.I. 2007-0238461E5 - Retiring Allowance

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: Will the payment of an amount to an employee of the Public Service under the Executive Employment Transition Policy (approved by Treasury Board), be considered a retiring allowance for purposes of subsection 248(1) of the Income Tax Act?

Position: Provided the payment meets the policy as described, yes

Reasons: wording of the legislation and a long-standing CRA position

Barb McGill
Executive Compensation Consultant
Canada Border Services Agency
100 Metcalfe Street, 8th Floor
Ottawa, ON K1A 0L8 2007-023846
Kimberly Duval, CA
(613) 599-6054
June 19, 2007

Dear Ms. McGill:

Re: Payment under the Executive Employment Transition Policy of Treasury Board

This is in response to your e-mail correspondence of June 2, 2007 requesting confirmation that the Canada Revenue Agency (the "CRA") would consider an amount paid to an employee of the Public Service under the Executive Employment Transition Policy as authorized by Treasury Board, to be a retiring allowance in accordance with subsection 248(1) of the Income Tax Act (the "Act"). You explain in your e-mail that the particular amount will include the standard components provided under the policy including:

1. a payment in lieu of unfulfilled salary in a surplus period due to a loss of work - to a maximum of 26 weeks; and

2. a payment of 5% of salary in lieu of foregone benefits.

Our Comments:

The determination as to whether a lump-sum amount or a portion of the lump-sum amount paid to an employee on termination of employment constitutes employment income or a retiring allowance is a question of fact that can only be determined after all of the facts pertaining to each particular case have been reviewed. However, the CRA has taken the position that amounts paid under the Executive Employment Transition Policy in lieu of an unfulfilled surplus period and foregone benefits are to be considered "retiring allowances" for purposes of the Act.

It is our understanding that you have confirmed with the appropriate officials at the Treasury Board that the Executive Employment Transition Policy has remained unchanged for the past several years. Consequently, we can confirm that the above-mentioned position is still the current views of the CRA provided the expressed or implied purpose of the particular payment under the policy is not a payment "in lieu of notice" nor is there an accumulation of further employment benefits to the retiree during the surplus period.

There is no provision in the Act that prohibits the payment of a retiring allowance in instalments. As stated in paragraph 17 of Interpretation Bulletin IT-337R4, Retiring Allowances, the employees may have the option of receiving an amount either as a lump sum at the time of termination or in instalments over a number of years under programs designed to encourage voluntary retirements. As such, it is our opinion that the election to choose the instalment option must be made on or before termination of employment, that is, before an employee is legally entitled to demand payment of the termination amount and the employer is obligated to pay the amount.

We trust our comments will be of assistance to you.

Yours truly,

Mary Pat Baldwin, CA
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Policy and Planning Branch