9 November 2000 External T.I. 2000-0049435 - PAYMENT LONG SERVICE DEATH

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: An employee dies and the Board of Directors decides to pay an amount in recognition of the employee's long service to the corporation after his or her death. 1) Will the amount paid qualify as a retiring allowance for purposes of the Act? Can the amount be transferred to the deceased employee's RRSP?

Position: 1) No. 2) No.

Reasons: 1) The retiring allowance definition specifically excludes an amount received as a consequence of an employee's death. 2) Subsequent to an annuitant's death, the annuitant or his or her estate is not eligible to make contributions to the RRSP.

XXXXXXXXXX 2000-004943
M. P. Sarazin
Attention: XXXXXXXXXX

November 9, 2000

Dear Sirs:

Re: Payment in Recognition of Long Service After Death

This is in reply to your letter of September 28, 2000, requesting our views regarding the taxation of an amount paid by an employer to an employee subsequent to the employee's death in recognition of his or her long service with the employer.

An employee of a Canadian-controlled private corporation dies and, in recognition of the employee's long service to the corporation, the Board of Directors of the corporation decides to pay an amount to the employee's estate. You are of the view that the amount paid by the corporation represents a retiring allowance for purposes of the Income Tax Act (the "Act") and the amount received can be rolled over to the deceased employee's registered retirement savings plan ("RRSP") under paragraph 60(j.1) of the Act. In addition, you believe that the amount paid by the corporation represented a right or thing for the purposes of subsection 70(2) of the Act.

Comments

In your letter you have outlined an actual fact situation related to completed transactions. As noted in Information Circular 70-6R3, this directorate can only provide advance income tax rulings in respect of specific proposed transactions. We must advise you that the review of completed transactions falls within the responsibility of tax services offices. Copies of information circulars and interpretation bulletins referred to in this letter 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. Consequently, we can only provide you with the following general comments.

The Canada Customs and Revenue Agency (the "Agency") has provided its general views regarding retiring allowances in Interpretation Bulletin IT-337R3. You will note that paragraph 2 of IT-337R3 states specifically that an amount received as a consequence of the death of an employee is not considered a retiring allowance for purposes of the Act. The comments in paragraph 11 of IT-337R3 only apply where an employee ceased employment and was entitled to receive a retiring allowance but he or she dies before the retiring allowance is paid. You will note that this is confirmed in paragraph 5 of Interpretation Bulletin IT-508R.

A "death benefit" is defined in subsection 248(1) of the Act to mean the total of all amounts received by a taxpayer in a taxation year on or after the death of an employee in recognition of the employee's service in an office or employment. Where an employee is employed at the time of his or her death and the employer decides to pay his or her estate an amount in recognition of the employee's long service with the employer, we would conclude that the payment qualifies as a death benefit for purposes of the Act. The Agency's general views regarding death benefits are provided in IT-508R titled "Death Benefits".

The Agency's general views regarding rights or things are provided in Interpretation Bulletin IT-212R3 titled "Income of deceased persons - Rights or things". Where an employee dies and, subsequent to such death, the employer decides to pay an amount in recognition of the employee's long service with the employer, we are of the view that the employee did not have a right or thing at the time of his or her death because the right did not exist at that time.

We also note that, when a taxpayer dies, he or she can no longer be the annuitant of an RRSP. Consequently, no contributions could be made by a deceased annuitant's estate to the deceased annuitant's RRSP. This is reflected on page 17 of T4011 "Preparing Returns for Deceased Persons 1999 wherein we state that, after a person dies, no one can contribute to the deceased's RRSP.

We trust the above comments will be of assistance.

Yours truly,

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