6 July 1994 External T.I. 9415205 - RETIRING ALLOWANCE TRANSFER TO RRSP

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:

Calculation of eligible amount of retiring allowance for transfer to RRSP.

Position TAKEN:

Described limits set by 60(j.1).

Reasons FOR POSITION TAKEN:

Routine

XXXXXXXXXX		941520

July 6, 1994

Dear Sirs:

Re: Retiring Allowance Paid to XXXXXXXXXX

This is in reply to your facsimile transmission of June 10, 1994, in which you ask for a ruling on behalf of the above-named client.

Enclosed for your information is Information Circular 70-6R2 and the Special Release thereto which describes the method of requesting an advance income tax ruling from the Department. Should you wish to pursue the ruling request for your client, please provide the deposit and documents as described in the Circular.

Although we are unable to provide a ruling at this time, we can provide you with the following general comments.

A "retiring allowance" as defined in subsection 248(1) of the Income Tax Act (unless as otherwise stated all references to this statute are to the Income Tax Act S.C. 1970-71-72, c. 63 as amended, consolidated to June 10, 1993 - the "Act") may be transferred to a registered retirement savings plan (RRSP) and a deduction taken to the extent provided by paragraph 60(j.1) of the Act.

The amount of the retiring allowance which is eligible for the deduction is equal to $2000 times the number of years the employee was employed by the employer or a person related to the employer; an additional $1500 per year is eligible for those years before 1989 that the employee was employed but is not entitled to the benefit of employer contributions to a pension plan or deferred profit sharing plan.

A part year of employment counts as a year so that, for example, if an individual is employed on December 31, 1990, and resigns January 2, 1992, the number of years employed will be three for purposes of the calculation of the amount eligible for transfer to the RRSP.

When calculating the eligible amount for years before 1989 with respect to the extra $1500, if the employer made contributions with respect to the individual's service for any part of a year and those contributions have vested (i.e. the employee will accrue benefits from those employer contributions), then that year may not be counted in the calculation for the extra $1500. For example, if the individual started employment in 1988 and employer contributions to a pension plan were made in respect of all or part of 1988, and those contributions have vested at the time the retiring allowance is paid, only $2000 could be transferred to the individual's RRSP in respect of the 1988 year.

The number of years of employment include years with the employer paying the retiring allowance and years of employment with a "person related to the employer". Subparagraphs 60(j.1)(iv) and (v) of the Act define this phrase to include a previous employer whose business was acquired or continued by the current employer, and a previous employer where employment with the previous employer is recognized for purposes of determining the individual's pension benefits under the current employer's pension plan. An example of the latter situation would be where the individual joins the current employer's pension plan and purchases the years of service with his former employer. The purchase could take the form of past service contributions or a transfer of a lump sum from the former employer's pension plan to the current employer's pension plan.

Although the foregoing comments are not binding on the Department, we trust they are helpful.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate