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: Whether payments received by an employee are income from employment or a retiring allowance.
Position: Question of fact.
Reasons: In this particular case, some of the amounts are employment income and some are a retiring allowance.
XXXXXXXXXX 2002-012863
A. Seidel
June 25, 2002
Dear XXXXXXXXXX:
Re: Employment Income or Retiring Allowance
We are writing in response to your letter, dated March 12, 2002, concerning the appropriate tax treatment of certain payments received by an employee from the employer, upon and after termination of employment.
The particular circumstances in your letter on which you have asked for our views relate to a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R4, it is not this Directorate's practice to comment on completed transactions involving a specific taxpayer. You should submit all relevant facts and documentation to the appropriate tax services office for their views. However, we are prepared to offer the following general comments that may be of assistance.
Whether an amount received by an employee, upon or after termination of employment, is income from employment, and therefore included in income pursuant to subsection 5(1) of the Income Tax Act (the "Act"), or a retiring allowance, within the meaning thereof in subsection 248(1) of the Act, and therefore included in income pursuant to subparagraph 56(1)(a)(ii) of the Act, is a question of fact that can only be determined after a review of any employment contracts, other agreements and all of the other circumstances relevant to a particular situation.
Paragraph 6(3)(b) of the Act provides, amongst other things, that an amount received by an employee, on account, in lieu of payment or in satisfaction of an obligation arising out of an agreement made by the payer with the payee during a period that the payee was an officer of, or in the employment of, the payer, shall be deemed, for the purposes of section 5, to be remuneration for the payee's services rendered as an officer or during the period of employment, unless it is established that, irrespective of when the agreement, if any, under which the amount was received was made or the form or legal effect thereof, it cannot reasonably be regarded as having been received as remuneration or partial remuneration under the contract of employment.
Where an officer/employee enters into an agreement that provides for the payment of retention bonuses, as an incentive to stay with the employer, it is our view that any amounts received (i.e. the $XXXXXXXXXX) pursuant to such an agreement would be income from employment pursuant to subsection 6(3) of the Act. This would include a lump sum payment received (i.e. the $XXXXXXXXXX) by the officer/employee upon termination of employment, which lump sum was in respect of retention bonuses payable to the employee pursuant to a retention bonus agreement.
Subsection 248(1) of the Act defines "retiring allowance" as being, amongst other things, an amount received by a taxpayer on or after retirement of a taxpayer from an office or employment in recognition of the taxpayer's long service or an amount received in respect of a loss of an office or employment of a taxpayer.
Where an employer agrees to make certain payments to, or on behalf of, a former employee, in recognition of the employee's loss of employment, it is our view that such payments would be received, by the former employee, as a retiring allowance (i.e. the $XXXXXXXXXX). Such amounts would be included in computing income for the taxation year, of the employee, in the year the payments are made, pursuant to subparagraph 56(1)(a)(ii) of the Act.
The scheme of the Act treats retiring allowances that are in respect of a loss of an office or employment as "other income". "Other Income" paid to a non-resident is taxed under Part XIII of the Act. The consequence of this will be that the retiring allowance paid to a non-resident, for years in which the non-resident was employed in Canada, is taxable under Part XIII at a rate of 25% as permitted under Article XXII of the Canada-US Treaty.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
- 2 -
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2002
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2002