1999 Ruling 9922313 - 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:

Is severance amount paid to spouse considered a retiring allowance? Years of no salary

Position: Yes

Reasons:

Meets requirements of retiring allowance. Employer / employee relationship in years of no salary.

XXXXXXXXXX 992231

Attention: XXXXXXXXXX

XXXXXXXXXX, 1999

Dear XXXXXXXXXX:

Re: XXXXXXXXXX - Retiring Allowance Paid to Spouse

This is in reply to your letter of XXXXXXXXXX wherein you request an advance income tax ruling on behalf of the above taxpayer. We also acknowledge telephone calls (XXXXXXXXXX), and subsequent correspondence received.

DEFINITIONS AND ABBREVIATIONS

In this letter, the following terms have the meanings specified:

(a) "Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as amended to the date hereof;

(b) "Registered retirement savings plan" ("RRSP") has the meaning assigned by subsection 146(1) of the Act;

(c) "Employer" means:

XXXXXXXXXX.

(d) "Employee" means:

XXXXXXXXXX.

FACTS

1. The Employer acquired land in XXXXXXXXXX, commencing a farm business proprietorship at that time.

2. The Employee commenced employment for the taxpayer in XXXXXXXXXX. The Employee turned XXXXXXXXXX years of age in XXXXXXXXXX.

3. The Employee continued to be employed by the Employer until XXXXXXXXXX. The amounts paid to the Employee from XXXXXXXXXX to XXXXXXXXXX are unknown. From XXXXXXXXXX to XXXXXXXXXX, total remuneration paid to the Employee was $XXXXXXXXXX.

4. During each year from XXXXXXXXXX to XXXXXXXXXX, the Employee worked for the proprietorship, including the operation of farm equipment, maintenance of livestock, maintaining the accounting system, etc. This was the case even during the years in which the Employee did not receive a salary.

5. In XXXXXXXXXX, the Employer ceased his farm proprietorship.

6. During XXXXXXXXXX, the Employer disposed all assets of the farm proprietorship to non-related third parties.

7. In XXXXXXXXXX, the Employee retired from the farm business permanently.

8. The Employee has no entitlements under any registered pension plan or deferred profit sharing plan as a result of her employment in the Employer's farming business.

PROPOSED TRANSACTIONS

9. The Employer proposes to pay the Employee a retiring allowance in the amount of $XXXXXXXXXX (or a lesser amount as determined by the Employer).

10. The Employee proposes to contribute the entire amount of the retiring allowance to an RRSP of which she is the annuitant.

PURPOSE OF THE PROPOSED TRANSACTIONS

11. The Employer wishes to pay the Employee a retiring allowance in recognition of her XXXXXXXXXX years of service and in respect of her loss of employment.

ADDITIONAL INFORMATION

12. To the best of your knowledge and that of the Employer and Employee, the issues related to this request:

a) have not previously been reported in the Employer's, Employee's or any related party's prior income tax return;

b) are not being considered by a tax services office in connection with any of the Employee's or a related party's prior income tax return;

c) are not under objection by the Employee or a related person;

d) are not before the courts; and

e) are not the subject of a ruling previously issued by this Directorate.

RULINGS GIVEN

Provided the above statement of facts and proposed transactions are accurate and constitute a complete disclosure of all relevant facts, and provided the transactions are completed as proposed, we rule as follows:

A. The amount of $XXXXXXXXXX (or a lesser amount as determined by the Employer) to be paid to the Employee will qualify as a retiring allowance as defined in subsection 248(1) of the Act, and will be included in her income in the year of receipt under subparagraph 56(1)(a)(ii) of the Act.

B. The Employee will be entitled to deductions under paragraph 60(j.1) of the Act to the extent permitted by that paragraph on the subsequent contribution of the $XXXXXXXXXX of the retiring allowance to an RRSP of which she is the annuitant.

C. For the purpose of section 67 of the Act, the retiring allowance proposed will be reasonable and will be deductible in computing business income from the Employer's farm proprietorship for the year in which it was paid.

These rulings are given subject to the general limitations and qualifications set forth in Information circular 70-6R3, dated December 30, 1996, issued by Revenue Canada Taxation, and are binding provided the amount described in 9 above is paid on or before XXXXXXXXXX.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate