23 February 2001 External T.I. 2001-0064325 - Retiring allowance paid by employer

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. Do payments under an early retirement program qualify as payments of a retiring allowance?

2. If the answer to 1. is yes, can the years of employment with previous employers be counted in determining the amount that may be transferred to an RRSP?

Position:

1. Yes.

2. Yes, if the allowance is paid by the current employer and the service with the former employer is recognized in the calculation of pension benefits.

Reasons:

1. They are being paid because of the employees termination or retirement.

2. Service with a former employer is recognized if any of that service is recognized in the calculation of pension benefits. Only payments by an employer may be transferred.

XXXXXXXXXX 		2001-006432
W. C. Harding
February 23, 2001

Dear XXXXXXXXXX:

Re: Public Sector Accord on Early Retirement and Teacher Career Transition

This is in reply to your letter of December 29, 2000, in which you asked if the payment of an amount under the above-noted plan will qualify as the payment of a retiring allowance and, if so, can the years of employment with a previous employer be counted in determining the amount that may be transferred to an RRSP.

Written confirmation of the tax implications of particular transactions may be provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in the Agency's Information Circular IC70-6R4 Advance Income Tax Rulings which may be obtained on the Internet at http://www.ccra-adrc.gc.ca/menu/EmenuKKB.html. However, because your request for an opinion involves payments that were made in 2000, the responsibility for determining the tax consequences arising from the payments rests with the tax services office serving your area. Accordingly, upon disclosure of all of the relevant facts, officers of the tax services office, will be able to assist you in clarifying the tax consequences pertaining thereto.

Although we cannot comment directly on your situation, we are able to provide you with the following general comments which may be of assistance.

First, the Agency is of the view that the payment of an amount in accordance with the terms of a plan such as yours, will generally qualify as the payment of a retiring allowance.

Second, for purposes of determining the amount of a retiring allowance eligible for tax-deferred transfer to an RRSP or RPP, you may include the years an employee was employed by the payer of the retiring allowance and by any other employer of the employee who is "related" to the payer. In this regard, it has generally been found that school boards in a province will not be related to one another. However, while two employers may not be related within the usual meaning of the word under the Income Tax Act (the "Act"), there is a special rule in subparagraph 60(j.1)(v) of the Act which permits a former employer to be considered to be related for purposes only of the retiring allowance transfer rules, where service with the former employer is recognized under the current employer's pension plan. Where an employee has transferred service from a former employer's pension plan to the current employer's pension plan, the years of service with both employers may be considered for purposes of paragraph 60(j.1) of the Act. This position will also apply where service with both employers is recognized under the same pension plan.

Subparagraph 60(j.1)(v) will not apply where the employee has accrued service under one plan, but has not transferred the service to the current plan and, instead, will be receiving benefits separately out of each plan. The fact that two plans may be administered by the same entity does not cause the two employers to be related in accordance with subparagraph 60(j.1)(v) of the Act.

It should be noted that a retiring allowance may only be transferred to an RRSP using the provisions of paragraph 60(j.1) of the Act, where it is paid by the recipient's employer. In our review of the material you submitted, we noted that the XXXXXXXXXX was to administer the accord and would pay amounts under the terms of the accord. Whether these amounts paid under the accord can be considered to be paid by the recipient's employer would depend on the function of the XXXXXXXXXX as administrator of the accord. Paragraph 60(j.1) of the Act would apply in the situation if the XXXXXXXXXX is paying amounts as agent of the school boards that are the employers' of the recipients of the retiring allowances. Given the nature of the arrangement, it may be appropriate to conclude that this was the intention. However, a review of supporting documentation would be required to definitively resolve this question of fact.

We trust this explanation will be of assistance to you.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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