6 March 2001 Internal T.I. 2001-0071317 - Retiring Allowance

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. Will an employee be considered to have a loss of office or employment within the meaning of paragraph (b) of the definition of "retiring allowance" in subsection 248(1) where, in order to provide additional continuous service for purposes of his RPP, he is put on leave without pay for one year immediately after he ceases to provide employment services to the employer?

2. Under what circumstances would a retiring allowance be characterized as a payment for recognition of long service?

Position:

1. Can only provide an answer in the context of a request for an Advance Income Tax Ruling.

2. Will be a question of fact as to whether an amount is a retiring allowance within the meaning of the definition in subsection 248(1).

Reasons:
1.  Position will depend upon all of the relevant facts in a given situation.
2.  A payment will constitute a retiring allowance paid in recognition of a taxpayer's long service if the facts of a particular situation lead to such a conclusion.
			March 6, 2001

HEADQUARTERS 	HEADQUARTERS
Policy and Technical Services 	Income Tax Rulings
Trust Accounts Division 	  Directorate
G. Kauppinen
	Attention:  Lorraine Maisonneuve 	957-8971

2001-007131

Retiring Allowance

This is in reply to your E-mail dated February 21, 2001 regarding retiring allowances.

Specifically, you have forwarded the following questions which were posed to you by a client:

1. Can an employee receive an amount as compensation for loss of employment within the meaning of paragraph (b) of the definition of retiring allowance in subsection 248(1) of the Income Tax Act (the "Act") where, upon the cessation of employment services by the employee, he or she is put on leave without pay for one year in order to increase his or her entitlement to pension benefits under his or her registered pension plan?

2. Can we provide an example of circumstances in which a payment to an employee would constitute a retiring allowance paid in recognition of long service?

Our Comments

1. An answer to this type of question will depend upon all of the relevant facts in a given situation and therefore can only be considered in the context of a request for an Advance Income Tax Ruling. However, the fact that a terminated employee is put on leave without pay when his or her services are no longer required would not automatically, in and by itself, preclude an amount paid to the employee before the end of the leave without pay as coming within paragraph (b) of the definition of retiring allowance in subsection 248(1) of the Act.

2. No. Whether a payment is in "recognition of long service" or not will depend upon the facts of a given situation, including the employer's stated reasons for making the payment to a retiring or terminated employee. Such a payment would normally be made in the context of an employee's voluntary retirement but is not restricted to those scenarios.

Roberta Albert, CA
for Director
Financial Industries Division