7 February 2002 External T.I. 2002-0119865 - RETIRING ALLO. AND WITHHOLDING

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. Withholding requirements and reporting of the reimbursement of legal fees paid to collect or establish a right to a retiring allowance.

2. Authorization or forms required for an employer to transfer an amount to an employee's RRSP without withholding tax.

Position TAKEN:

1. None.

2. None.

Reasons:

1. Amounts are taxable pursuant to paragraph 56(1)(l.1), but are not included in amounts described in subsection 153(1) or regulation 100.

2. No requirement in Act or Regulations.

XXXXXXXXXX 				2002-011986
T. Young, CA
February 7, 2002

Dear XXXXXXXXXX:

Re: Withholding Requirements for Severance Pay / Wrongful Dismissal Damages

We are writing in reply to your letter of January 22, 2002, requesting our views on certain withholding requirements for severance pay / wrongful dismissal damages.

Specifically, you have asked us to confirm that income tax does not need to be withheld from the amount an employer (or former employer) pays for the reimbursement of legal fees paid by an employee (or former employee) to establish a right to a retiring allowance. You have also asked us for the reporting requirements for such amounts on the T4A.

Finally, you have asked us to confirm that there is no special authorization or paperwork that the employer needs to obtain or complete with respect to transferring the amount equivalent to the employee's RRSP deduction limit, as confirmed on the employee's Notice of Assessment when the amount is in addition to the amount eligible for transfer pursuant to paragraph 60(j.1) of the Income Tax Act (the "Act").

Our Comments

Legal Fees

Paragraph 56(1)(l.1) of the Act requires a taxpayer to include in computing income amounts received as an award or reimbursement of legal expenses paid to collect or establish a right to a retiring allowance. Our view is that these amounts are not payments described in subsection 153(1) of the Act nor are they included in the definition of "remuneration" in subsection 100(1) of the Income Tax Regulations (the "Regulations"). Accordingly, there is no statutory requirement for an employer to withhold tax in respect of such amounts.

Further, there is no statutory requirement under section 200 of the Regulations to report such amounts on an information slip. However, if an employer wishes to report these amounts on a T4A, we would suggest that Box 28 (Other income) be used with "00" in Box 38 (Footnote codes) and a brief explanation in the Footnotes area.

RRSP

Paragraph 100(3)(c) of the Regulations excludes from withholding a premium under a registered retirement savings plan, to the extent that the employer believes on reasonable grounds that the premium is deductible under paragraph 60(j.1) or as a regular or spousal RRSP contribution pursuant to subsection 146(5) or (5.1) of the Act respectively. As long as the RRSP contribution is paid directly to the RRSP, no tax needs to be withheld and no written authorization or paperwork is required to confirm this.

We trust our comments will be of assistance to you.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate