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 liquidator appointed by the courts pay a retiring allowance to the former employees of the Company that is being liquidated? 2) Will an amount paid by the liquidator qualify for the 60(j.1) rollover?
Position: 1)Yes. 2) Yes
Reasons: 1)The definition refers to an amount received by an individual in respect of his or her loss of office or employment. 2) The liquidator is really paying an amount on behalf of the employer.
December 19, 2000
XXXXXXXXXX TAX SERVICES OFFICE HEADQUARTERS
Verification & Enforcement Division M.P. Sarazin
Business Enquiries Section (613) 824-5441
Attention: XXXXXXXXXX
2000-005323
Payments by Liquidator Qualifying as a Retiring Allowance
We are writing to you in response to your memorandum of October 26, 2000, requesting our views regarding certain payments made by XXXXXXXXXX to a former employee of XXXXXXXXXX qualifying as a retiring allowance for purposes of the Income Tax Act (the "Act"). Since you have not been provided with any of the employment contracts between any of the former employees and XXXXXXXXXX, we can only provide the following general comments relating the following general facts.
Facts
In XXXXXXXXXX (the "Employer") admitted its insolvency and filed a Notice of Intention to Make a Proposal to its creditors under the Bankruptcy and Insolvency Act.
Through the courts, the Employer entered into a Plan of Compromise and Arrangement (the "Plan"), which was subsequently amended and restated. Ultimately, the Employer, through a newly incorporated subsidiary wholly-owned corporation (the "Company"), would dispose of certain of its assets for the benefit of its creditors. Included as part of the liabilities compromised under the Plan are claims filed by the employees and former employees of the Employer (the "Former Employees") numbering XXXXXXXXXX. The claims filed by the Employer's Former Employees include:
(a) amounts owing with respect to severance payments regarding their loss of employment under the Employer's established employment policy;
(b) amounts owing with respect to payments in lieu of notice of termination based upon statutory provincial guidelines;
(c) amounts owing with respect to accrued vacation pay; and
(d) amounts owing with respect to disability amounts.
The incorporation of the Company was required in order to have a vehicle available to transfer out certain of the Employer's assets and liabilities. The net proceeds from the disposition of the Employer's assets that were transferred to the Company that could be distributed by the Company to the creditors of the Employer is significantly less than the creditors' claims against the Employer.
A Liquidator was appointed as liquidator of the Company under a Winding-Up Order issued by the courts. The Liquidator has commenced liquidating the assets of the Company and is using the proceeds received therefrom, net of any expenses, to pay amounts, to the extent possible, on the claims of the Employer's compromised creditors. In fact, the Liquidator made a payment to the Former Employees in XXXXXXXXXX. It is expected that the Liquidator will make another payment to the Employer's Former Employees in satisfaction of their claims against the Employer, their former employer in XXXXXXXXXX. Amounts representing severance in respect of the Former Employee's loss of employment based on the Employer's established employment policy will be included in the total payments to be made to the Former Employees (the "Severance Portion"). Amounts representing payments in lieu of reasonable notice of termination based upon statutory provincial guidelines, accrued vacation pay and disability amounts will also be included in the total payments to be made to the Former Employees (the "Termination Portion").
The Liquidator will report the amounts paid to the Former Employees in 2000 on a T4A. The Severance Portion will be reported in the boxes titled "Retiring Allowance" (broken down between the eligible and non-eligible portions of the retiring allowance) and the Termination Portion will be reported in the box titled "Other Income".
Certain Former Employees will transfer all or part of the Severance Portion that qualifies as an eligible retiring allowance to their registered retirement savings plans ("RRSP") under paragraph 60(j.1) of the Act. It is noted that a Former Employee will only transfer the eligible retiring allowance to his or her RRSP (i.e., he or she is the annuitant under the particular RRSP).
The Severance Portion of any payments made by the Liquidator to the Employer's Former Employees would qualify as a retiring allowance within the meaning assigned by subsection 248(1) of the Act. Consequently, this amount will be included in the Former Employees income under subparagraph 56(1)(a)(ii) of the Act.
We are also of the view that a Former Employee will be entitled to a deduction under paragraph 60(j.1) of the Act, within the limits described therein, of the subsequent contribution in the year or within 60 days after the end of the year to an RRSP, under which he or she is the annuitant, of the eligible portion of the retiring allowance that is received in that year by the Former Employee.
The determination of each Former Employee's eligible amount of retiring allowance is a question of fact that can only be determined on a case by case basis for each Former Employee.
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 Canada Customs and Revenue Agency'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 Mrs. Jackie Page at (613) 994-2898. A copy will be sent to you for delivery to the client.
Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
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