2001 Ruling 2001-0105633 - 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 CCRA.

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

Principal Issues: Is an amount paid by a farmer to his spouse considered a reasonable retiring allowance given that the spouse worked for XXXXXXXXXX years but was only T4'D for XXXXXXXXXX years.

Position: Yes, given the facts of this case, the amount not exceeding an amount eligible for rollover under paragraph 60(j.1) of the Act to an RRSP is accepted as reasonable.

Reasons: In accordance with guideline provided in Question 10 at the 1992 Prairie Tax Conference Round Table and prior rulings given in similar circumstances.

XXXXXXXXXX 						2001-010563

XXXXXXXXXX, 2001

Dear XXXXXXXXXX:

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

This is reply to your letters of XXXXXXXXXX and facsimile of XXXXXXXXXX, requesting an advance income tax ruling on behalf of the above noted taxpayers. We also acknowledge the information provided during our various telephone conversations (XXXXXXXXXX).

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

Facts

1. The Employer and Employee live on XXXXXXXXXX. They deal with the XXXXXXXXXX Tax Services Office XXXXXXXXXX and file their returns with the XXXXXXXXXX Tax Centre. The Employer's business number is XXXXXXXXXX.

2. The Employer commenced farming near XXXXXXXXXX around XXXXXXXXXX. The Employer and Employee married in XXXXXXXXXX. The Employee began working on the farm with her husband immediately.

3. The Employer began paying the Employee wages for the farm work in XXXXXXXXXX. The Employee's compensation in the subsequent years has been as follows:

XXXXXXXXXX.

This totals $XXXXXXXXXX over XXXXXXXXXX years. The Employee has not benefited from any pension plan or DPSP in conjunction with her farm employment. The Employee retired from the Employer's farm in XXXXXXXXXX.

4. The Employee has provided XXXXXXXXXX years of service with unpaid labour for XXXXXXXXXX of those years. Her duties since marriage have included picking rocks, harrowing/packing during seeding, cultivating summer fallow, combining and truck driving during harvest, and numerous other farm related duties.

5. The Employer sold the farm equipment in XXXXXXXXXX and has rented out the majority of the farmland. He will be selling the remaining inventories in XXXXXXXXXX.

Proposed Transactions

6. The Employer proposes to pay the Employee a retiring allowance of $XXXXXXXXXX for her XXXXXXXXXX years of service.

7. The Employee proposes to have the full amount of the retiring allowance transferred into a registered retirement savings plan ("RRSP") pursuant to paragraph 60(j.1) of the Income Tax Act (the "Act").

Purpose of the Proposed Transactions

8. The Employer would like to make a payment to the Employee in recognition of the long service she has provided to his farm.

Additional Information

9. To the best of your knowledge and that of the Employer and the Employee, none of the issues involved in this request for an advance tax ruling:

a) is in an earlier return of the Employer or the Employee or of a person related to the Employer or the Employee;

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

c) is under objection by the Employer or the Employee or by a person related to the Employer or the Employee;

d) is before the courts; nor

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

Rulings Given

Providing that the preceding statements constitute a complete and accurate disclosure of all relevant facts, proposed transactions and purpose of the proposed transactions, and provided that the transactions are completed as proposed, we rule as follows:

A. The amount of $XXXXXXXXXX to be paid to the Employee will qualify as a retiring allowance as defined in subsection 248(1) of the Act and will be included in the Employee's income under subparagraph 56(1)(a)(ii) of the Act in the year in which it is paid.

B. The proposed payment of $XXXXXXXXXX to the Employee's RRSP will be deductible by the Employee pursuant to paragraph 60(j.1) of the Act to the extent permitted therein.

C. The amount of $XXXXXXXXXX will be deductible by the Employer in computing income from the business of farming for the year in which it is paid and will be considered reasonable for the purposes of section 67 of the Act.

These rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R4 dated January 29, 2001 issued by the Canada Customs and Revenue Agency, and are binding provided the proposed transactions are completed by XXXXXXXXXX.

Yours truly,

XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate