22 November 2000 Internal T.I. 2000-0036517 - RETIRING ALLOWANCE - REIM. OF COSTS

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 an amount paid as a result of a taxpayer's loss of office be received tax free because the taxpayer is under the impression that the amount represented a reimbursement of his costs incurred to fight the case?

Position: No.

Reasons: The taxpayer has not provided any proof to substantiate his claim that the amount was not received in respect of his loss of office or employment.

									November 22, 2000

	HEADQUARTERS						HEADQUARTERS
Revenue Collection Directorate				M.P. Sarazin
						Income Tax Rulings
	Attention: Phil Bettencourt					  Directorate
 								824-5441

									2000-003651

XXXXXXXXXX (the "Taxpayer") (XXXXXXXXXX)

We are writing to you in response to your facsimiles of July 7 and November 6, 2000, wherein you requested our opinion as to whether a certain payment would constitute a retiring allowance for purposes of the Income Tax Act (the "Act").

The Taxpayer was dismissed from his employment with XXXXXXXXXX (the "Employer") in XXXXXXXXXX. The Taxpayer sued for wrongful dismissal and, on XXXXXXXXXX, the Taxpayer executed a Full and Final Release in favour of the Employer and the personal defendants in the wrongful dismissal case. The terms of the Minutes of Settlement were as follows:

(a) The Employer was to pay the Taxpayer the sum of $XXXXXXXXXX in full satisfaction of all claims including costs.

(b) The party and party costs of the personal defendants ($XXXXXXXXXX) that were sued by the Taxpayer along with the Employer was to be deducted from the sum of $XXXXXXXXXX and the balance of $XXXXXXXXXX was to be paid as follows:

(i) an amount was to be paid to XXXXXXXXXX for the maximum pension benefit entitlements for XXXXXXXXXX; and

(ii) the balance of the settlement funds ($XXXXXXXXXX less the amount paid to XXXXXXXXXX) are designated as costs to be paid directly to the Taxpayer.

(c) The settlement is conditional upon all parties abiding by the terms of a Confidentiality Agreement.

The Employer issued T4's for XXXXXXXXXX to capture the pension adjustment required for each of those years. The Employer also issued a T4 in XXXXXXXXXX with only the amount of $XXXXXXXXXX in box 20 as an RPP contribution. The Taxpayer claimed a deduction for the $XXXXXXXXXX in XXXXXXXXXX and the deduction was disallowed.

You are of the view that the Employer should have issued a T4A in XXXXXXXXXX reporting the $XXXXXXXXXX as a retiring allowance, reporting the portion of the retiring allowance that was eligible for rollover under paragraph 60(j.1) of the Income Tax Act (the "Act") and reporting the $XXXXXXXXXX as a past service registered pension plan contribution.

Comments

Paragraph (b) of the expression "retiring allowance" as defined in subsection 248(1) of the Act includes an amount received in respect of a loss of an office or employment of a taxpayer, whether or not received as, on account or in lieu of payment of, damages or pursuant to an order or judgment of a competent tribunal by the taxpayer. It would appear that, based on the limited correspondence provided by the Taxpayer, the amount paid by the Employer would constitute a retiring allowance for purposes of the Act. The Taxpayer is arguing that the amount was paid to reimburse him for his costs which included his legal fees, his time for travel to and from the courts for the case discovery and trial dates, his costs for retraining in Toronto and the reduced salary he had to take as a result of not getting employment in his field. We note that the Taxpayer has not provided any proof to support his position and it is clear that the amount relates to his loss of office or employment with the Employer. In any case, the Minutes of Settlement should be reviewed to make a final determination.

If it is determined that the amount received constitutes a retiring allowance for purposes of the Act, we note that the legal costs incurred by the Taxpayer in respect of the settlement would be deductible under paragraph 60(o.1) of the Act, the amount contributed to the registered pension plan for XXXXXXXXXX would be deductible by the Taxpayer under paragraph 147.2(4)(a) of the Act and the amount of the retiring allowance eligible for transfer to a registered retirement savings plan ("RRSP") under paragraph 60(j.1) of the Act may be claimed where an amount was in fact transferred to an RRSP within the time allowed under paragraph 60(j.1) of the Act.

We trust these comments will be helpful.

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate