19 March 2002 External T.I. 2001-0101415 - Srce Ded., Issuance T4, emp.mov. o of pro.

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Source deduction requirements re: salary continuance payments.

Position: Depends on nature of payments.

Reasons: Different results under regulation 100(4)(a) and (b).

2001-010141
XXXXXXXXXX Mohamud Jivraj
(613) 957-9796
March 19, 2002

Dear XXXXXXXXXX:

Re: Inter-provincial move

We are writing in reply to your fax of September 14, 2001 in which you requested our opinion with respect to the respective source deduction and reporting requirements with respect to salary continuance payments to employees who no longer are required to report for work and who no longer live in Ontario. We apologize for the delay in replying.

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where transactions are proposed and are the subject matter of an advance income tax ruling request. However, we are prepared to provide the following general comments.

Source deduction requirements depend on the nature of the payment. Since we have not been apprised of the relevant details we cannot make this determination with any certainty. In particular, the requirements will differ depending on whether the payments constitute salary or retiring allowances and whether the employment relationship exists at the time of payment. For a discussion of factors to be considered in making these determinations, we refer you to Interpretation Bulletin 337R3 and Income Tax Technical News No. 19 both of which can be found on the CCRA website at ccra-adrc.gc.ca.

You informed us verbally that pension benefits in respect of the salary continuance payments continue to accrue while the payments are being made. We, therefore, assume that the salary continuance payments are not payments of retiring allowances and that the employment relationship continues to exist while the payments are being made. It appears that XXXXXXXXXX has a permanent establishment in Ontario from which these employees are paid. In such a case, Regulation 100(4)(a) to the Income Tax Act deems the employees to report for work at your office in Ontario. Therefore, you would deduct income tax as if the employees reported for work in Ontario. Canada Pension Plan and Employment Insurance premiums will also be deducted. The payments are to be shown as salary on the employees' T-4s.

If, on the other hand, the payments constitute retiring allowances, Regulation 100(4)(b) deems the employees to report for work in the province where they reside. Income tax would be deducted accordingly. Canada Pension Plan and Employment Insurance premiums are not deducted from retiring allowances. The payments would be reported on T-4As.

We trust that you will find the above to be of assistance.

Yours truly,

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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