3 June 2002 External T.I. 2002-0128335 - RECOGNITION OF SERVICE

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 pensionable service with a former employer which can be bought back under a reciprocal agreement included for purposes of subparagraph 60(j.1)(v) and therefore the employers are related for purposes of 60(j.1)?

Position: No.

Reasons:

The fact that past service with a former employer is eligible for recognition under a reciprocal agreement does not satisfy the requirements of 60(j.1)(v) that the service with the former employer be recognized in determining the retiree's pension benefits. The past service with the former employer must actually be recognized (included) in determining the retiree's pension benefits for the purposes of 60(j.1)(v).

XXXXXXXXXX 						2002-012833
							Gary Allen
June 3, 2002

Dear XXXXXXXXXX:

Re: Interpretation of Subparagraph 60(j.1)(v) of the Income Tax Act (the "Act")

This letter is in reply to your letter dated March 7, 2002, wherein you requested our interpretation of the phrase "service therewith is recognized" for purposes of subparagraph 60(j.1)(v) of the Act.

We are unable to definitively reply to a request involving a proposed transaction contemplated by a specific taxpayer except in the context of an advance income tax ruling request, submitted in the manner set out in Information Circular 70-6R4 Advance Income Tax Rulings. However, we are able to offer the following general comments concerning the relevant provisions of the Act that may or may not apply in your situation. As such, these comments are not binding on the Canada Customs and Revenue Agency.

For purposes of paragraph 60(j.1) of the Act, a "person related to the employer" includes, in accordance with subparagraph 60(j.1)(v), a previous employer of the retiree whose service therewith is recognized in determining the retiree's pension benefits. In 13(b) of Interpretation Bulletin 337R3 - Retiring Allowances, it states that where an employer's pension plan recognizes any part of the years of service with a former employer, then all of the years of service with the former employer can be included for purposes of clause 60(j.1)(ii)(A) of the Act. Where an employee is entitled to pension benefits under an employer's pension plan that are in respect of years of service with a former employer, we would consider that "service therewith is recognized" in determining the employee's pension benefits. The fact that past service with a former employer is eligible to be purchased, for example, under a reciprocal agreement, does not constitute recognition of that service as required by subparagraph 60(j.1)(v) of the Act and, therefore, such eligibility, in and by itself, would not result in the former employer being considered as a "person related to the employer" for purposes of paragraph 60(j.1) of the Act. However, if, in such a situation, an employee actually purchases the past service, in our view, the "service therewith is recognized" for purposes of subparagraph 60(j.1)(v) of the Act.

We trust the above comments are of assistance.

Yours truly,

Roberta Albert, CA
Manager
Income Tax Rulings Directorate
Policy and Legislation Branch