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: Has an employee retired in the situation described?
Position: Because it is a factual situation we provided general comments that may apply in the circumstances described.
Reasons: Our answer is based on positions developed over time.
XXXXXXXXXX 2001-011006
W. C. Harding
December 6, 2001
Dear XXXXXXXXXX:
Re: Re-employment after Payment of a Retiring Allowance
This is in reply to your letter of November 1, 2001, and our telephone conversation of November 26, 2001 (XXXXXXXXXX/Harding) in which you asked for a ruling concerning the payment of a retiring allowance to an employee who is re-employed shortly after the amount is paid.
In the situation at hand, you paid an amount of $XXXXXXXXXX as a retiring allowance, to an employee at the time of his retirement on XXXXXXXXXX. At that time, $XXXXXXXXXX of the allowance was transferred to an RRSP under which the retiree was the annuitant and $XXXXXXXXXX was paid directly to the retiree. However, because of certain events that occurred at the time you are now concerned about the treatment of the payment.
Shortly before XXXXXXXXXX, it was determined that a senior management position would become vacant and that it would have to be filled as soon as possible. At that time, a member of the XXXXXXXXXX Board of Directors told the employee that the board was looking at various scenarios to handle the vacancy on an interim basis, and that the employee would be recommended as one of three persons who could possibly assume the position. The board discussed the issue on XXXXXXXXXX, and made the decision to offer the position to the employee. The offer was extended to him on XXXXXXXXXX. The employee accepted the position and returned XXXXXXXXXX.
The CCRA's local tax services offices are responsible for the determination and assessment of the consequences arising out of completed transactions. Accordingly, because your request for a ruling involves a determination of the tax consequences that will result because of a completed transaction, it should be referred to the tax services offices of the taxpayers involved for their consideration.
Written confirmation of the tax implications of proposed transactions may be provided by this Directorate where the transactions are the subject matter of an advance income tax ruling request submitted in the manner set out in the Canada Customs and Revenue Agency ("CCRA") Information Circular 70-6R4, Advance Income Tax Rulings. Copies of the information circular and the publications referred to below, may be obtained from your local tax services office or on the Internet at:
http://www.ccra-adrc.gc.ca/tax/technical/incometax/menu-e.html.
However we are prepared to provide you with the following general comments.
To be a retiring allowance, a payment must be received upon or after retirement or be paid in respect of a loss of office or employment. However, the CCRA has stated in paragraph 3 of IT-337R3 - Retiring Allowances, that retirement or loss of office does not include:
"(a) transfer from one office or position to another with the same employer (or an affiliate) in a different capacity,...[or]
(b) termination of employment with an employer followed by
? re-employment with the employer (on a full or part time basis) or
? employment with an affiliate of the employer
pursuant to an arrangement made prior to the termination of employment ..."
Clarifying comments have been made by the CCRA in Technical News No. 7, dated February 21, 1996, and No. 20, dated June 14, 2001. In Technical News No.7, the CCRA included the following comment:
"the intention [of paragraph 3 of Interpretation bulletin 337R2] was to deny retiring allowance treatment of payments made by the employer where arrangements have been made for the individual to obtain employment with an affiliate. If there is no assurance or offer of a new employment with an affiliate at the time the individual ceases the employment, then we will consider a loss of employment or retirement to have occurred."
These comments continue to be valid. Furthermore, while they refer to continued employment with an affiliate, they also apply to situations where an employee is re-employed by a previous employer.
We trust these general 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
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