30 January 1986 Income Tax Severed Letter A-1862 - [Severance Pay Owing to a Deceased Employee*]

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.

Head Office

Ms. Beatrice Timm Chief Pay & Benefits Section Human Resources Directorate House of Commons Ottawa, Ontario K1A OA6

W.E. Douglas 995-0051

January 30, 1986

Dear Ms. Timm:

This is in reply to your letter of September 9, 1985 wherein you inquired if Severance Pay owing to a deceased employee and payable to the Estate can be transferred to a registered retirement savings plan (RRSP).

You advised us that by definition, Severance Pay is an entitlement payable to eligible employees upon cessation of employment. This entitlement is payable to employees, or their Estate, in such cases as resignation, retire- ment, death, release for incompetence or incapacity, rejection on probation and others as may be applicable. In the case of an employee's death, it is not considered a death gratuity.

It is our view that where an employee ceased employment but died before the Severance Pay was received, the subsequent payment of the amount to the employee's widow will be a retiring allowance as defined in subsection 248(1) of the Income Tax Act. Such a payment can therefore be transferred directly into an RRSP pursuant to paragraph 60(j.l) of the Act.

On the other hand, where the employee died while still employed, the Severance Pay amount is considered to be a death benefit by virtue of subsection 248(1) of the Act. Where the death benefit is received by the employee's widow, either directly or indirectly through a trust, the amount to be reported as income by the widow pursuant to subparagraph 56(l)(a)(iii) is reduced by the lesser of

(i) the amount received, (ii) the amount of the employee's salary, wages or other remuneration for the last year, and (iii) $10,000.

We trust that the above comments are of assistance to you. Yours truly,

for Director Financial Industries Division