24 May 2000 External T.I. 2000-0023585 - RETIRING ALLOWANCE FOREIGN SERVICE

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 certain portion of retiring allowance can be attributed specifically to services rendered while non-resident for purposes of 212(1)(j.1)((i).

Position: Question of fact and law.

Reasons: What portion of a retiring allowance can "reasonably be regarded as attributable to services rendered" while non-resident depends on the facts and terms of employment/termination.

XXXXXXXXXX 								2000-002358
M. P. Sarazin
Attention:  XXXXXXXXXX 

May 24, 2000

Dear Sirs:

Re: Paragraph 212(1)(j.1) and Services Outside of Canada

This is in response to your letter of May 1, 2000, which was sent to the International Tax Services Office and forwarded to us, concerning the application of paragraph 212(1)(j.1) of the Income Tax Act (the "Act") to a retiring allowance that will be paid to your client by his employer.

Your client is a non-resident Canadian citizen who has been employed by a Canadian corporation for the past twenty years. For the last ten years, your client has worked for the Canadian employer's office in Hong Kong. While in Hong Kong, your client's remuneration has consisted of a Canadian base salary, an annual bonus, a foreign service allowance, and a cost of goods and services allowance (to cover increased costs of living in Hong Kong).

Your client's services are no longer required by the Canadian employer and he has negotiated a severance payment that will be paid by the employer on his termination. The Canadian employer has agreed to pay a severance equal to one year's pay (including salary, bonuses and allowances). The severance pay will constitute a retiring allowance, within the meaning assigned by subsection 248(1) of the Act.

Your client wants to know how paragraph 212(1)(j.1) will apply to the proposed severance payment to be made by the Canadian employer to your client.

Comments

Confirmation of the tax consequences associated with completed transactions are provided by the relevant tax services office. Opinions concerning proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. For more information concerning advance tax rulings, please refer to Information Circular 70-6R3 dated December 30, 1996, issued by the Canada Customs and Revenue Agency (the "Agency"). Copies of Information Circulars and Interpretation Bulletins are available from your local tax services office or on the Internet at the following site - http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. However, we can provide you with the following general comments.

Under subparagraph 212(1)(j.1)(i) of the Act, the portion of a retiring allowance paid to a non-resident that is attributable to services rendered by the non-resident in years when he was not resident in Canada and throughout which he was not employed in Canada or was only occasionally employed in Canada is exempt from taxes under Part XIII of the Act. This determination can only be made after a review of all of the facts and terms of employment and termination. We cannot confirm, except in the context of an advance income tax ruling, whether allocating the portion relating to non-resident service on the basis of an amount of salary that pertains solely to living abroad (e.g., cost-of-living differential) is a reasonable method of allocation in the circumstances.

Yours truly,

Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate