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 proposed retiring allowance reasonable and deductible?
Position: Question of fact.
Reasons: Question of fact.
2002-011711
XXXXXXXXXX Karen Power, CA
(613) 957-8953
February 11, 2002
Dear XXXXXXXXXX:
Re: Retiring Allowance
We are writing in reply to your letter of December 19, 2001, requesting our views regarding the reasonableness of a retiring allowance in a particular situation.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R4 entitled Advanced Income Tax Rulings, dated January 29, 2001. Where the particular transactions are completed, the enquiry should be addressed to the relevant tax service office. The following comments are, therefore, of a general nature only and are not binding on the Canada Customs and Revenue Agency.
An employer's deduction of an amount payable to an employee as a retiring allowance is subject to the general provision concerning the deduction of reasonable expenses made or incurred for the purpose of gaining or producing business income as provided in section 67 of the Act. Thus, the amount payable to the employee must be reasonable in the circumstances considering the employee's length of service, the relationship of the amount of the retiring allowance to the remuneration (including bonuses) received for the years of service and the value of the pension and other retirement benefits to which the employee is entitled in respect of the service.
Whether a particular retiring allowance is reasonable is a question of fact and, in order to make such a determination, it would be necessary to review all the facts surrounding the particular situation. We would be pleased to consider your situation in the context of an advance income tax ruling.
We trust our comments will be of assistance to you. These comments are provided in accordance with the practice outlined in paragraph 22 of Information Circular 70-6R4.
Yours truly,
Mickey Sarazin, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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