2001 Ruling 2001-0091793 - RETIRING ALLOWANCE FROM FARM OPERATION

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: Whether amount to be paid will be a retiring allowance?

Position: Yes.

Reasons: Meets requirements of a retiring allowance. Employer / employee relationship established.

XXXXXXXXXX 2001-009179

XXXXXXXXXX, 2001

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling
XXXXXXXXXX (the "Employer")
XXXXXXXXXX (the "Employee")

This is in reply to your letter of XXXXXXXXXX, requesting an advance income tax ruling on behalf of the above-referenced taxpayers. We also acknowledge the information provided during our telephone conversation of XXXXXXXXXX and your letter of XXXXXXXXXX.

Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:

Facts

1. The employer has operated a XXXXXXXXXX farm all of his working life as a proprietorship.

2. Both the Employer and the Employee file their income tax returns at the XXXXXXXXXX Taxation Centre.

3. The Employee married the Employer on XXXXXXXXXX and has worked on the farm from the date of their marriage to the present time. She has held no other employment with any other employer over this period of time. Her tasks were all encompassing and were determined in accordance with the ongoing business of running a farm seven days a week.

4. There was no formal employment agreement or contract between the Employer and the Employee.

5. The farm has always been operated solely by the Employer; it had no other hired help.

6. The Employee commenced receiving compensation from the Employer in XXXXXXXXXX. The amounts received were as follows:

XXXXXXXXXX.

7. The above compensation amounts were reported as farm custom income by the Employee each year. No expenses were ever claimed against the gross amounts received.

8. The Employer has never made contributions to a pension fund or deferred profit sharing plan on behalf of the Employee.

9. The farm operation will be wound down in XXXXXXXXXX, as the Employer will be retiring.

10. The Employee will turn XXXXXXXXXX years old on XXXXXXXXXX and will be retiring from the farm operation.

Proposed Transactions

11. The Employer proposes to pay $XXXXXXXXXX to the Employee in XXXXXXXXXX, in recognition of her years of service.

12. The Employee proposes to contribute the entire $XXXXXXXXXX to a Registered Retirement Savings Plan ("RRSP") of which she is the annuitant.

Purpose of the Proposed Transactions

13. The purpose of the proposed transactions are to provide the Employee with an amount at retirement from employment in recognition of her years of service on the farm and to allow her to transfer the amount to an RRSP.

Additional Information

14. To the best of your knowledge and the knowledge of the taxpayers, none of the issues involved in this request for an advance income tax ruling:

(a) is in an earlier return of the taxpayers or a related person;

(b) is being considered by a tax services office or taxation centre in connection with a previously filed return of the taxpayers or of a person related to either of the taxpayers;

(c) is under objection by the taxpayers or by a person related to either of the taxpayers;

(d) is before the courts;

(e) is the subject of a ruling previously considered by the Income Tax Rulings Directorate.

Rulings Given

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions, and purpose of the proposed transactions and provided further that the proposed transactions are carried out as described above, we rule as follows:

A. The amount of $XXXXXXXXXX to be paid to the Employee by the Employer will qualify as a retiring allowance as defined in subsection 248(1) of the Income Tax Act (the "Act") and will be included in the Employee's income in the year of receipt pursuant to subparagraph 56(1)(a)(ii) of the Act.

B. The Employee will be entitled to a deduction under paragraph 60(j.1) of the Act to the extent permitted by that paragraph on the subsequent contribution of the retiring allowance received by her to an RRSP under which she is the annuitant.

C. The amount of $XXXXXXXXXX will be deductible by the Employer in computing his income from the business of farming for the year of payment.

The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R4 dated January 29, 2001, and are binding on the Canada Customs and Revenue Agency provided that the proposed transactions are completed by XXXXXXXXXX.

Yours truly,

XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate