7 March 1995 External T.I. 9500685 - RETIRING ALLOWANCE - EMPLOYED

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 ISSUE:

Whether the period of notice required under the Employment Standards Act can be considered for the purposes of calculating the number years pursuant to clause 60(j.1)(ii)(A) of the Act.

Position TAKEN:

Yes (See Decision Summary)

Reasons FOR POSITION TAKEN:

1.The period of time to which a payment under section 57 of ESA relates is considered "eligible service" for the purposes of paragraph 8503(3)(a) of the Regulations (Ref. 5-923379). It therefore seems appropriate to consider that period for the purposes of clause 60(j.1)(ii)(A).

2.An individual can remain employed without actually working (jurisprudence).

		5-950068
XXXXXXXXXX	L. Roy

Attention: XXXXXXXXXX

March 7, 1995

Dear Sir\Madam:

Re: Retiring Allowance

This is in reply to your letter of January 4, 1995 in which you requested our opinion on whether the period of notice required under the Ontario Employment Standards Act ("ESA") can be considered for the purposes of calculating the number of years when determining the eligible portion of a retiring allowance transferable to a registered retirement savings plan ("RRSP").

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2, dated September 28, 1990. Where the particular transactions are completed, the enquiry should be addressed to the relevant district taxation office. However, we offer you the following general comments which may be of assistance to you.

Pursuant to clause 60(j.1)(ii)(A) of the Income Tax Act ("Act"), a taxpayer can transfer a retiring allowance to a RRSP to the extent of "$ 2,000 multiplied by the number of years during which the employee... was employed by the employer or a person related to the employer". Part of a year will be counted as one full year, if the individual was employed within the meaning of the Act, during a period of time in the year.

Section 57 of the ESA imposes a minimum number of weeks of notice prior to termination depending on the years of employment (8 weeks for employees employed for 8 years or more). During the period of notice, an individual is entitled to receive his regular wages and the employer must contribute to maintain benefits to which the employee is entitled. Subsection 57(14) of the ESA provides that if the employment is otherwise terminated, the individual is entitled to termination pay (which is salary and not retiring allowance) equal to the regular wages payable over the same number of weeks for which notice was required. In addition, the employer must contribute to maintain benefits to which the employee was entitled throughout the period.

The Department has taken the position that in a case where pension benefits continue to accrue or normal employee benefits continue to be enjoyed by an individual, it is unlikely that employment has ceased even though the individual is not required to report to work. Consequently, it is our view that whether or not a payment under section 57 of the ESA is received in one lump-sum amount and whether or not the individual continues to report for work or to perform any employment duties is irrelevant in determining if the individual is employed for the period of notice, since the ESA requires that benefits continue to accrue.

Therefore, it is our view that the number of weeks of notice required under section 57 of the ESA could be considered in calculating the number of years for the purposes of clause 60(j.1)(ii)(A) of the Act. However, it should be noted that the same treatment would not be granted to payment received as severance pay under section 58 of the ESA.

Although the foregoing comments are not binding on the Department, we trust they are helpful. If you have any questions do not hesitate to contact us.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate
Policy & Legislation Branch