30 May 2001 External T.I. 2001-0080735 - SALE OF A BUSINESS R/A

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 to an employee by a non-incorporated employer for vested sick leave credits qualify as a retiring allowance where the non-incorporated employer transfers its business to a corporation and the shares of the corporation are sold to an arm's length corporation on the same day and the new corporation is wound up on the same day?

Position: Yes.

Reasons: The non-incorporated employer is selling its business to an arm's length person and we have previously concluded that this constitutes a loss of office or employment.

XXXXXXXXXX 2001-008073
M. P. Sarazin, CA
May 30, 2001

Dear XXXXXXXXXX:

Re: Retiring Allowance

This is in reply to your letter of April 10, 2001, requesting our views regarding payments that will be made to employees who are losing their jobs with the XXXXXXXXXX.

Comments

Opinions concerning proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. For more information concerning advance tax rulings, please refer to Information Circular 70-6R4 dated January 29, 2001, issued by the Canada Customs and Revenue Agency (the "Agency"). Copies of information circulars and interpretation bulletins 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. However, we can provide you with the following general comments.

The determination of whether an amount is paid in respect of a loss of an office or employment is a question of fact. You will find the Canada Customs and Revenue Agency's general views regarding the treatment of amounts paid as a result of an employee's loss of office or employment in Interpretation Bulletin IT-337R3 entitled "Retiring Allowances".

Paragraph 3 of IT-337R3 identifies specific situations that do not result in an employee's retirement or loss of office or employment. Paragraph 3(b) specifies that termination of employment with an employer followed by re-employment with the employer or employment with an affiliate of the employer does not result in retirement or loss of office or employment. In our view, this position would not apply where an employer sells its business to an arm's length person and the employee is hired by the arm's length person subsequent to the acquisition of the business. We also note that paragraph 5 of IT-337R3 states that the payment of unused sick leave credits in recognition of long service or in respect of the loss of an office or employment will qualify as a retiring allowance. Consequently, the payment of unused sick leave credits to an employee by an employer as a result of the sale of the employer's business to an arm's length person would generally qualify as a retiring allowance where the particular employee is hired by the arm's length person subsequent to the sale of the business.

We trust these comments will be of assistance.

Yours truly,

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