2 April 1996 External T.I. 9601565 - RETIRING ALLOWANCE RE-EMPLOYMENT

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:

1.Whether one can be re-employed by the same employer after receiving a retiring allowance?

2.Is it possible to transfer a retiring allowance to one's RRSP when one has already received a retiring allowance from the same employer at a previous time?

Position:

1.Yes
2.Yes

Reasons:

Previous positions taken 5-951675

			5-960156
XXXXXXXXXX		Franklyn S. Gillman

Attention: XXXXXXXXXX

April 2, 1996

Dear Sir/Madam:

Re: Retiring Allowance and Termination of Employment

This is in reply to your letter dated November 17, 1995 wherein you requested a written ruling as to the income tax consequences on the termination of employment and subsequent re-employment by the same employer when a retiring allowance was received upon termination.

Assurances as to the tax consequences of proposed transactions can only be given in response to a formal request for an advance income tax ruling. Accordingly, your query should take the form of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R2 dated September 28, 1990 (copy enclosed including the Special Release dated September 30, 1992). As expressed at paragraph 6 in the Information Circular, the Department will not express opinions on definite transactions that are being proposed other than by way of an advance income tax ruling, nor will the Department provide rulings on completed transactions. This Directorate is therefore not in a position to give a definite response to your inquiry. However, we are prepared to offer the following general comments which may be of assistance to you.

Retiring allowance is defined in subsection 248(1) of the Income Tax Act (the "Act") to mean an amount ... 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)...

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

(c) ... ."

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(s) based on long service, it is the Department's position that this payment(s) 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. Generally this position would not apply however, where after the employee is advised that the employment will be terminated, but before the employee is actually terminated and the payment is made, the employer or an affiliate arranges for re-employment or new employment.

We also confirm your understanding that amounts received from an employer as a retiring allowance which have been transferred to an RRSP and deducted from income will limit the amount of any retiring allowance received from that employer which may be transferred to an RRSP in the future.

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