29 October 2001 External T.I. 2001-0105095 - 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 CCRA.

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

Principal Issues: 1. Where a business is acquired by a new employer, can the employees employed in the business use the years of service while the business was operated by the old employer in calculating the amount of a retiring allowance, received from the new employer, which is eligible for roll-over to an RRSP? 2. Will the years of service with the old employer be allowed in the calculation where the new employer's pension plan recognizes years of service with the old employer?

Position: Yes, under the conditions described in either 1. or 2. above.

Reasons: Paragraphs 60(j.1)(iv) and (v).

XXXXXXXXXX 			2001-010509
G. Kauppinen
October 29, 2001

Dear XXXXXXXXXX:

Re: Retiring Allowances

This is in reply to your letter of August 24, 2001 regarding retiring allowances. Specifically, you inquire as to whether years of service with a former employer can be used by a retiring employee in calculating the amount of a retiring allowance which can be rolled-over to a registered retirement savings plan ("RRSP") in a situation where the business utilizing the services of the retiring employee was purchased by the employer paying the retiring allowance from the former employer. You have stated that the years of service of the employee with the former employer are used in calculating the pension benefits that the retiring employee will receive from the current employer.

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. 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.

Our Comments

The Agency's general views regarding retiring allowances are found in Interpretation Bulletin IT-337R3 titled "Retiring Allowances". Paragraph 12 of IT-337R3 discusses the amount of a retiring allowance that may be eligible for transfer to an RRSP under paragraph 60(j.1) of the Income Tax Act ("Act"). You will note that the transfer limit is computed as the aggregate of $2,000 times the number of years before 1996 during which the employee was employed by the employer or a person related to the employer and $1,500 times the number of years before 1989 that the employee was employed by the employer or a person related to the employer wherein the employee did not have any vested rights to employer contributions to a pension plan or a deferred profit sharing plan for those years.

Under subparagraphs 60(j.1)(iv) and (v) of the Act, certain employers are considered related for purposes of determining the number of years of service (or equivalent number of years of service) that can be included under paragraph 60(j.1) of the Act. As noted in paragraph 13 of IT-337R3, where an employer has acquired the business of another employer or where the employer's pension plan provides the employee with benefits in respect of the employee's service with the previous employer, the employers will be related for the purposes of determining the amount eligible under paragraph 60(j.1) of the Act. We note that this determination is a question of fact.

We trust our comments will be of assistance to you.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch