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) Can a CCPC pay its owners a retiring allowance on their retirement from the business? 2) Will the payment of a monthly amount for a 5 or 10 year period by the CCPC to the owners after their retirement jeopardize the payment of the retiring allowance?
Position: 1) Yes. 2) Question of Fact.
Reasons: 1) There is nothing in the Act preventing the payment of a retiring allowance to a non-arm's length recipient. 2) A review of all of the facts would be required in order to determine whether the periodic payments would jeopardize the payment of the retiring allowance.
XXXXXXXXXX 2000-002753
M. P. Sarazin
Attention: XXXXXXXXXX
August 18, 2000
Dear Sirs:
Re: Retiring Allowance and Non-Funded Employer Pension
This is in reply to your letter of May 18, 2000, wherein you requested our comments regarding the payment of a retiring allowance by a Canadian-controlled private corporation (the "Company") to its owners.
The Company operates a XXXXXXXXXX farm which qualifies as a family farm corporation. Two individuals, Mr. A and Mrs. A, own 100% of the outstanding shares of the Company. Mr. A has been employed by the Company since XXXXXXXXXX and Mrs. A has been employed by the Company since XXXXXXXXXX. Mr. And Mrs. A are contemplating retiring from the business and allowing their children to take over the farm operations.
The Company will pay Mr. A a retiring allowance of $XXXXXXXXXX which will be paid directly to his registered retirement savings plan ("RRSP"). The Company will pay Mrs. A a retiring allowance of $XXXXXXXXXX which will be paid directly to her RRSP. In addition, the Company will make monthly payments of $XXXXXXXXXX to each of Mr. A and Mrs. A for a period of XXXXXXXXXX years after their retirement.
You have asked the following questions:
1) Will the monthly payments jeopardize Mr. and Mrs. A's ability to transfer their retiring allowances to their RRSPs?
2) Would the monthly payments paid to Mr. and Mrs. A after their retirement have to be reported as employment income or as pension income?
3) Would the monthly payment be deductible by the Company?
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.
The Agency's general views with respect to retiring allowance are found in Interpretation Bulletin IT-337R3. Paragraph 2 of IT-337R3 states that a retiring allowance is defined in subsection 248(1) of the Income Tax Act (the "Act") as an amount received on or after retirement from an office employment in recognition of the taxpayer's long service. Whether a specific payment will qualify as a retiring allowance is a question of fact.
In the above case, this determination would require a review of the applicable agreements, Mr. and Mrs. A's continued responsibilities after their retirement, a history of the salaries paid to Mr. and Mrs. A, the responsibilities assumed by the children and the purpose of the monthly payments that will be paid by the Company subsequent to their retirement.
In order to comment on the reporting of the monthly post-retirement payments and the deductibility of such payments, we would also have to review all the facts relating to such payments.
Yours truly,
Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate
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