8 May 2000 Internal T.I. 2000-0013797 - RETIRING ALLOWANCE AFTER REEMPLOYMENT

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: Will a severance amount payable to a retired provincial civil service employee be a "retiring allowance" if the retired employee accepts part-time employment with another Ministry of the provincial government before receiving the severance payment?

Position: Yes.

Reasons: Restricted to this particular taxpayer. Similar situations to be considered on a case by case basis. IT-337R3 par. 3(b) is to be revised to reflect this new position and this is to be announced in Income Tax Technical News.

				May 8, 2000

	THUNDER BAY TSO	HEADQUARTERS
			Income Tax Rulings
	Attention:  Julia Verhoeven	  Directorate
G. Kauppinen
(613) 957-8971

2000-001379

Severance Allowance

This is in reply to your facsimile of March 14, 2000 requesting our comments regarding a severance allowance to be received by a taxpayer (a copy of the enquiry is enclosed).

Facts

1. The taxpayer was employed with the XXXXXXXXXX, Province of Ontario.

2. On XXXXXXXXXX, the taxpayer retired and has commenced receiving a pension from the Ontario provincial civil service pension plan.

3. Upon retirement, the taxpayer was entitled to receive a lump-sum allowance based upon his years of service (the "severance allowance").

4. The taxpayer was offered part-time employment with another ministry in the Ontario civil service before he retired his job with the XXXXXXXXXX. The taxpayer has accepted the offer of part-time employment and is now re-employed. He has not yet received his severance allowance pending receipt of our comments regarding his situation. The new job has no relation to his former position. In addition, he is not receiving any benefits and is not a member of any pension plan. No accrued benefits such as sick leave credits from his former position are or will be recognized in the new position.

Your Query

When it is paid, will the severance allowance constitute a "retiring allowance" within the meaning contained in subsection 248(1) of the Income Tax Act (the "Act")?

Our Comments

The Canada Customs and Revenue Agency's position on this issue is contained in paragraph 3(b) of Interpretation Bulletin IT-337R3 (the "I.T."). In order for an amount to be considered a "retiring allowance" it must be received "after retirement ... from an office or employment in recognition of ... long service" or "in respect of a loss of an office or employment". In interpreting these phrases, the Agency makes the following statement in the I.T.:

3. Retirement or loss of employment does not include: ...

(b) termination of employment with the employer followed by ...

* re-employment with the employer (on a full or part-time basis) ...

pursuant to an arrangement made prior to the termination of employment.

In our opinion, all ministries of the Ontario Government would constitute the same employer, that is, Her Majesty in Right of Ontario.

Consequently, in accordance with our published position in paragraph 3 of IT-337R3, the severance allowance would be considered employment income taxable in accordance with subsection 5(1) of the Act and no deduction would be available under paragraph 60(j.1) of the Act.

However, we have reviewed the position and decided to amend paragraph 3 of IT-337R3 to allow for a roll-over to an RRSP of severance amounts received in certain situations where the recipient has been or will be re-employed, including the situation described above. This change is to be announced in our next issue of the Income Tax Technical News. The determination of whether the re-employment falls within the exception will be determined by the tax services office if the transactions are completed, or through an application to this directorate for an advance income tax ruling in accordance with Information Circular 70-6R3 if the transactions are proposed.

We trust the foregoing is of assistance. If there are further questions, please contact Gord Kauppinen at (613) 957-8971.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Department's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at (613) 957-0682. The severed copy will be sent to you for delivery to the client.

for Director
Financial Industries Division
Income Tax Rulings Directorate