27 June 2001 External T.I. 2001-0083125 - TRANSFER UNDER 60(j.1)

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: Restrictions applicable to a transfer of severance pay under paragraph 60(j.1) of the Income Tax Act.

Position: 1) As per the limits under paragraph 60(j.1). 2) A retention bonus is not a retiring allowance.

Reasons: 1) Limits provided under paragraph 60(j.1). 2) Retention bonus does not satisfy the definition of retiring allowance.

XXXXXXXXXX 2001-008312
G. Allen
June 27, 2001

Dear XXXXXXXXXX:

Re: Interpretation Bulletin IT-337R3 - Retiring Allowances

This is in reply to your letter of April 30, 2001, in which you request clarification concerning the income tax treatment of retiring allowances as discussed in Interpretation Bulletin IT-337R3.

We are unable to definitively reply to a request involving a proposed transaction contemplated by a specific taxpayer except in the context of an advance income tax ruling request, submitted in the manner set out in Information Circular 70-6R3 Advance Income Tax Rulings. However, we are prepared to provide the following general comments, which may be of assistance.

To qualify as a retiring allowance, a payment must be in recognition of the taxpayer's long service or in respect of loss of an office or employment. Where an employer pays an amount to an employee for loss of office or employment, e.g., severance pay, the amount will generally be considered a retiring allowance. An amount paid by an employer to an employee as a retention bonus for remaining employed until a certain date, will be considered employment income as it is paid for the purpose of keeping their employment, not for the loss of it.

The full amount of any retiring allowance must be included in the taxpayer's income by virtue of subparagraph 56(1)(a)(ii) of the Income Tax Act (the "Act") in the year in which it is received. However, a deduction is available under paragraph 60(j.1) of the Act for all or part of a retiring allowance transferred to a registered retirement savings plan ("RRSP") under which the taxpayer is the annuitant. In general, the maximum amount that may be transferred under paragraph 60(j.1) is:

• $2,000 for each year or part year the taxpayer was employed by the employer prior to 1996, and
• $1,500 for each year or part year the taxpayer was employed by the employer prior to 1989 for which the employer's contributions to a pension plan or deferred profit sharing plan had not vested in the taxpayer at the time the retiring allowance is paid.

In addition to the above limit, to obtain a deduction under paragraph 60(j.1), the retiring allowance must be paid into the taxpayer's RRSP in the year the retiring allowance is received or within 60 days after the end of the year, and the retiring allowance must not have been deducted from income in a preceding taxation year.

We trust the above comments will be of assistance.

Yours truly,

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