30 May 1995 External T.I. 9504775 - 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.

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:

Whether or not a severance payment in a particular situation would be a retiring allowance and eligible for rollover

Position TAKEN:

Question of fact. I gave the taxpayer our general position.

Reasons FOR POSITION TAKEN:

			5-950477
XXXXXXXXXX		M.P. Baldwin

Attention: XXXXXXXXXX

May 30, 1995

Dear Sirs:

Re: Retiring Allowance

This is in reply to your letter of February 16, 1995 and further to our telephone call of April 4, 1995 (Harding/XXXXXXXXXX) in which you request a technical interpretation regarding the payment of a severance payment and the transfer of this payment to an RRSP.

Written confirmation of the tax implications inherent in particular proposed transactions are given by this Directorate only where the transactions are outlined in an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R2. Questions concerning actual fact situations should otherwise be directed to your district tax services office. Although we cannot provide a specific answer to your query, we offer the following general comments which are not binding on the Department.

Retiring allowance is defined in subsection 248(1) of the Income Tax Act (the "Act") to mean an amount (other than a superannuation or pension benefit, and, after November 12, 1981, an amount received as a consequence of the death of an employee) received upon or after retirement from an office or employment in recognition of one's service or in respect of a loss of office or employment. However, as noted in paragraph 4 of Interpretation Bulletin IT-337R2 (copy enclosed) retirement or loss of employment by an individual does not include:

a) situations where the individual is subsequently employed by a person who acquires or continues the business of the former employer, or

(b) termination of employment (other than mandatory retirement) with an employer followed shortly by employment with an affiliate of the former employer.

For the purposes of determining whether or not termination of employment has occurred the word "affiliate" is intended to be given its broadest meaning and would include any related or associated company that is a member of a group of companies that do not deal at arm's length, notwithstanding that they may not be related or associated for purposes of the Act. It is thus our view that two companies would be affiliated for these purposes where one effectively controls the other by virtue of exercisable stock options, or by virtue of a combination of exercisable stock options and economic influence - if one is a major supplier or customer of the other, for example, and could influence the other's hiring practices. It is also our view that two companies could be affiliated when these companies have an interdependent working relationship which, among other things, permits or encourages the exchange of employment opportunities.

It is our opinion that position (b) stated above would also apply where the individual is rehired by the former employer shortly after leaving his employment. It could also apply, depending on the contractual arrangements, where the individual is engaged shortly after leaving employment to perform services for his former employer as an independent contractor.

Where, in an arm's length situation, an employee has retired without any assurance at the time of retirement of being hired by an affiliate, or being rehired by his former employer, and receives from the former employer a payment based on long service, it is the Department's position that this payment will qualify as a retiring allowance notwithstanding that the individual might be hired by the affiliate, or rehired by the former employer, at a later time when circumstances have changed. This position would not apply, however, where such non-assurance exists at the time of agreeing to terminate his employment but not on the last day of employment; i.e., between the time of the agreement and the last day of employment arrangements are made for the employee to be rehired or to take up employment with an affiliate.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch