2001 Ruling 2001-0110533 - 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:

Is a retiring allowance in the amount equal to or less than the amount eligible for the paragraph 60(j.1) rollover reasonable for the purposes of section 67?

Position: Yes.

Reasons: Published position 1992 Prairie Provinces Tax Conference.

XXXXXXXXXX 							2001-011053

XXXXXXXXXX, 2001

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling
XXXXXXXXXX
XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above-noted taxpayers.

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

Facts

1. XXXXXXXXXX ("Mr. W" and "Mrs. W", respectively) live on the XXXXXXXXXX.

2. Mr. W and Mrs. W deal with the XXXXXXXXXX Tax Services Office and file their returns with the XXXXXXXXXX Tax Centre.

3. Mr. W commenced farming near XXXXXXXXXX around XXXXXXXXXX. Mr. and Mrs. W married in XXXXXXXXXX. Mrs. W began working on the farm with her husband immediately. Mr. W began paying his wife wages for the farm work in XXXXXXXXXX. However, Mrs. W had provided XXXXXXXXXX years of service with unpaid labour prior to receiving a wage. Her duties since marriage have included equipment operation, delivering parts/materials and equipment, banking, organizing bills and receipts, organizing and maintaining schedules, and numerous other farm-related duties.

4. Mrs. W's compensation in the last XXXXXXXXXX years is as follows:

XXXXXXXXXX.

This totals $XXXXXXXXXX over the last XXXXXXXXXX years, for an average annual salary of $XXXXXXXXXX.

5. Mr. W rented out the majority of the farmland in XXXXXXXXXX. He is still farming XXXXXXXXXX but having the majority of the work (seeding, spraying, combining) performed on a custom basis. He sold most of the farm equipment in XXXXXXXXXX and will be selling the remaining grain inventories in XXXXXXXXXX.

6. Mrs. W has not benefited from any pension plan or DPSP in conjunction with her farm employment.

Proposed Transactions

7. Mrs. W will retire from Mr. W's farm in XXXXXXXXXX.

8. Mr. W will make a payment to Mrs. W in recognition of the long service she has provided to his farm. Mr. W proposes to pay a retiring allowance of $XXXXXXXXXX to Mrs. W in XXXXXXXXXX for her XXXXXXXXXX years of service. Mrs. W plans on transferring the $XXXXXXXXXX retiring allowance into a registered retirement savings plan.

Purpose of the Proposed Transactions

9. The purpose of the proposed transaction is to recognize the long and distinguished service of Mrs. W to Mr. W's farm business.

Additional Information

10. Mr. W's business number is XXXXXXXXXX.

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

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

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

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

(d) before the courts; nor

(e) the subject of a ruling previously issued by the Income Tax Rulings Directorate to any of the taxpayers.

Rulings Given

Provided that the preceding statements constitute a complete and accurate disclosure of the relevant facts, proposed transactions and purpose of the proposed transactions, we rule as follows:

A. Provided that the payment in 8 above is made on or after Mrs. W retires from Mr. W's farm, the amount paid to Mrs. W will qualify as a retiring allowance as defined in subsection 248(1) of the Act and will be included in Mrs. W's income in the year of receipt pursuant to subparagraph 56(1)(a)(ii) of the Act.

B. Mrs. W will be able to deduct, pursuant to paragraph 60(j.1) of the Act, such amount as is designated by her in her income tax return not exceeding the lessor of the retiring allowance received in the year and the amount contributed to her registered retirement savings plan in the year or within 60 days after the end of the year to the extent that it was not deducted in computing her income for a preceding taxation year.

C. The retiring allowance will be a deductible expense to Mr. W in computing his income from his farm proprietorship pursuant to subsection 9(1) of the Act for the year in which it is paid and the deduction will not be denied pursuant to paragraph 18(1)(a) or section 67 of the Act.

The above rulings, which are based on the Act in its present form and do not take into account any proposed amendments thereto, are given subject to the general 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 retiring allowance is paid prior to XXXXXXXXXX.

Yours truly,

XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate