20 April 1994 Internal T.I. 9409700 - RETIRING ALLOWANCE - PARTNERSHIP

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 Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Would a payment made to an employee immediately before the employee becomes a partner be a retiring allowance?

Position TAKEN:

Question of fact but generally no.

Reasons FOR POSITION TAKEN:

Not in recognition of prior service. (Also see 5-913085, April 8, 1992.)

Revenue Canada Round Table
1994 Alberta C.A. Round Table

Retiring Allowances

Assume that an individual has been employed by a partnership for ten years. The employee is then asked to join the partnership, and accepts. At that time all of the individual's rights to appropriate notice on termination of employment cease. In consideration for resigning from the employment position the partnership pays the employee a termination payment immediately prior to joining the partnership.

Would such a payment meet the definition of "retiring allowance" in subsection 248(1)?

Department's Position

The question of whether or not a payment made by an employer to an individual is a retiring allowance as defined in subsection 248(1) must be determined on the facts of each case. However, the payment must be in respect of a loss of office or employment, or a retirement therefrom, and it must be reasonable in the circumstances.

Generally, it is our view that the payment to an employee, as described, would not be considered to be in recognition of that person's prior employment with the partnership since the admittance of an employee to a partnership is usually regarded as a promotion (and sufficient reward for past services). As a result, such a payment would be additional income from employment or additional partnership income, depending on the particular facts.

Prepared by:  J.Stalker
		    Deferred Income Plans Section
		    April 20, 1994
		    7-940970