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 Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Are payments retiring allowances and can they be transferred to RRSPs?
Position: Yes.
Reasons: Complies with the applicable provisions
XXXXXXXXXX 2002-014028
XXXXXXXXXX, 2002
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX
This is in reply to your letters of XXXXXXXXXX, in respect of your request for an advance income tax ruling on behalf of the above-noted persons.
Definitions and Abbreviations
In this letter, the following terms have the meanings specified:
(a) "Act" means: the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as amended to the date hereof;
(b) "CCRA" means: the Canada Customs and Revenue Agency;
(c) "Closing Date" means: XXXXXXXXXX or such other date as the Employer and the Purchaser may agree;
(d) "Effected Department" means: XXXXXXXXXX, a department of the Employer that:
XXXXXXXXXX;
(e) "Employees" means: the employees of the Employer who work in the Effected Department of the Employer and "Employee" refers to any one of the Employees;
(f) "Employer" means: the XXXXXXXXXX, a corporation exempt from income taxation by virtue of paragraph XXXXXXXXXX of the Act,
CCRA business number XXXXXXXXXX,
XXXXXXXXXX Tax Services Office,
XXXXXXXXXX Tax Centre;
mailing address:
XXXXXXXXXX;
(g) "Local One" means: XXXXXXXXXX which is a union for public employees and is the sole and exclusive collective bargaining agency for those Employees covered by a particular certificate issued under the XXXXXXXXXX;
(h) "Local One Agreement" means: the XXXXXXXXXX Collective Agreement dated XXXXXXXXXX , entered into by the Employer and Local One, a copy of which was provided with the advance income tax ruling request;
(i) "Local One ETA" means: the XXXXXXXXXX Employee Transitional Agreement dated XXXXXXXXXX, entered into by the Purchaser and Local One, a copy of which was provided with the advance income tax ruling request;
(j) "Local Two" means: the XXXXXXXXXX which is a union for professional, administrative and supervisory employees and is the sole and exclusive collective bargaining agency for those Employees covered by the Local Two Agreement;
(k) "Local Two Agreement" means: the XXXXXXXXXX Collective Agreement dated XXXXXXXXXX, entered into by the Employer and Local Two, a copy of which was provided with the advance income tax ruling request;
(l) "Local Two ETA" means: the XXXXXXXXXX Employee Transitional Agreement dated XXXXXXXXXX, entered into by the Purchaser and Local Two, a copy of which was provided with the advance income tax ruling request;
(m) "Purchaser" means: XXXXXXXXXX, a crown corporation incorporated by statute under the laws of the Province of XXXXXXXXXX that is exempt from income taxation by virtue of paragraph XXXXXXXXXX of the Act,
CCRA business number XXXXXXXXXX,
XXXXXXXXXX Tax Services Office,
XXXXXXXXXX Tax Centre
mailing address:
XXXXXXXXXX;
(n) "RRSP" means: a registered retirement savings plan; and
(o) "Unions" means: Local One and Local Two.
Facts
1. The Employer employs approximately XXXXXXXXXX Employees in the Effected Department with approximately XXXXXXXXXX of the Employees represented by Local Two and approximately XXXXXXXXXX of the Employees represented by Local One. Approximately XXXXXXXXXX of the Employees are not represented by either of the Unions.
2. The Purchaser is a major supplier of the Effected Department. Otherwise, the Employer and the Purchaser operate independently of each other, deal with each other at arm's length and are not affiliated as that term is defined in paragraph 3 of CCRA's Interpretation Bulletin IT-337R3 Retiring Allowances.
3. In or about XXXXXXXXXX, the Purchaser offered to purchase all of the assets, business and undertaking of the Effected Department and, in so doing, offered to assume certain of the liabilities of the Employer.
4. The Employer accepted the offer and approved the sale on XXXXXXXXXX. Furthermore, on XXXXXXXXXX, the Board of Directors of the Purchaser approved the acquisition of the assets. The purchase and sale of the assets is to be completed on the Closing Date.
5. The Purchaser has made an offer of employment to each Employee on terms that ensure that the Employee' s wages and benefits are retained at current levels, subject to any future negotiations.
6. As a result of the sale of the operations of the Effected Department, each Employee has the following employment options available:
(a) to accept an offer of employment with the Purchaser that the Purchaser has made to each Employee on terms that ensure that the Employee's wages and benefits are retained at current levels, subject to any future negotiations; or
(b) to continue in the employ of the Employer with another one of its departments, subject to the terms of the Local One Agreement or Local Two Agreement, as the case may be.
7. As a result of the sale of the operations of the Effected Department, some Employees may elect to terminate employment with the Employer and elect to voluntarily take severance pay (which according to the agreements with the Unions amounts to XXXXXXXXXX weeks pay for every year of service with the Employer, up to a maximum of XXXXXXXXXX weeks).
8. The Local Two Agreement provides that an Employee represented by Local Two is to be credited with XXXXXXXXXX days of annual sick leave per month and that any unused portion of the annual sick leave credit is to accrue to the benefit of the Employee.
9. The Local Two Agreement provides that in the case of an Employee hired before XXXXXXXXXX, upon retirement, death or a termination of service caused by the transfer of a departmental function, in total or in part, from the Employer to another administration, an amount, as set out in the Local Two Agreement, may be paid to the Employee or the Employee's legal representative in respect of all or a portion of the unused accrued sick leave.
10. The Local Two Agreement also provides that an Employee represented by Local Two who was hired after XXXXXXXXXX, shall be entitled to receive an amount as a severance payment equivalent to one day's pay per year of service for the first XXXXXXXXXX years of service and XXXXXXXXXX days' pay for each year of service thereafter, upon the Employee's retirement, death or a termination of service caused by the transfer of a departmental function, in total or in part, from the Employer to another administration.
11. In contemplation of the acquisition of the Effected Department's assets by the Purchaser, Local Two has entered into the Local Two ETA with the Purchaser. The purpose of the Local Two ETA is to: (i) allow for a smooth transfer of staff, programs and services to all customers of the Employer and to allow customers to continue to receive quality services; and (ii) to facilitate a smooth transfer of staff of the Employer to the Purchaser. For the purposes of this ruling, significant terms of the Local Two ETA are as follows:
(a) The Local Two ETA applies to all Employees of the Employer in the Local Two jurisdiction.
(b) Employees of the Employer currently represented by Local Two will continue to be in the Local Two jurisdiction and be covered by the Local Two Agreement.
(c) Employees who accept offers of employment with the Purchaser will become employees of the Purchaser effective on the Closing Date.
(d) No Employees will have their salary reduced by virtue of the Local Two ETA.
(e) Employees are entitled to receive their accumulated sick leave cash-out or severance payment as contemplated in the Local Two Agreement and described in 9 and 10 above, within XXXXXXXXXX days of the Closing Date.
Alternatively, transferring Employees may choose to:
(i) continue to be covered by the existing sick leave rights as provided by the Local Two Agreement provisions;
(ii) cash-out all eligible sick leave severance pay credits as described in 9 and 10 above;
(iii) vest their current cash-out entitlement into the sick leave vesting account of the Purchaser, to the extent described in the Local Two ETA; and
(iv) to take any combination of items (ii) and (iii).
(f) All Employees have until XXXXXXXXXX to select one of the options in subparagraph (e) above.
(g) All eligible Employees received an employment letter from the Purchaser outlining a permanent employment offer from the Purchaser.
(h) The Employer has an employee benefit plan, which includes the Employer's pension plan and long-term disability plan. The plan will become a multi-employer plan under which the Purchaser will become a participant. Transferring Employees will remain members of the plan.
(i) Employees transferring to the Purchaser shall maintain the service seniority earned while working for the Employer.
12. The Local One Agreement provides that an Employee represented by Local One is to be credited with XXXXXXXXXX days of annual sick leave per year and that any unused portion of the annual sick leave credit is to accrue to the benefit of the Employee.
13. The Local One Agreement provides that in the case of an Employee hired before XXXXXXXXXX, upon retirement, death or a termination of service caused by the transfer of a departmental function, in total or in part, from the Employer to another administration, an amount, as set out in the Local One Agreement, may be paid to the Employee or the Employee's legal representative in respect of all or a portion of the unused accrued sick leave, with the amount paid being dependent on whether the Employee terminates employment on or before XXXXXXXXXX or thereafter.
14. The Local One Agreement also provides that an Employee represented by Local One who was hired before XXXXXXXXXX, and has not retired on or before XXXXXXXXXX, or was hired after XXXXXXXXXX , shall be entitled to receive an amount as a severance payment equivalent to one day's pay per year of service for the first XXXXXXXXXX years of service and XXXXXXXXXX days' pay for each year of service thereafter, upon the Employee's retirement, death or a termination of service caused by the transfer of a departmental function, in total or in part, from the Employer to another administration.
15. In contemplation of the acquisition of the Effected Department's assets by the Purchaser, Local One has entered into the Local One ETA with the Purchaser. The purpose of the Local One ETA is to: (i) allow for a smooth transfer of staff, programs and services to all customers of the Employer and to allow customers to continue to receive quality services; and (ii) to facilitate a smooth transfer of staff of the Employer to the Purchaser. For the purposes of this ruling, significant terms of the Local One ETA are as follows:
(a) The Local One ETA applies to all Employees of the Employer in the Local One jurisdiction who commence employment before the Closing Date.
(b) Employees of the Employer currently represented by Local One will continue to be in the Local One jurisdiction and be covered by the Local One Agreement.
(c) Employees who accept offers of employment with the Purchaser will become employees of the Purchaser effective on the Closing Date.
(d) No Employees will have their salary reduced by virtue of the Local One ETA.
(e) Employees are entitled to receive their accumulated sick leave cash-out or severance payment as contemplated in the Local One Agreement and described in 13 and 14 above, within XXXXXXXXXX days of the Closing Date.
Alternatively, transferring Employees may choose to:
(i) continue to be covered by the existing sick leave rights as provided by the Local One Agreement provisions;
(ii) cash-out all eligible sick leave severance pay credits as described in 13 and 14 above;
(iii) vest their current cash-out entitlement into the sick leave vesting account of the Purchaser, to the extent described in the Local One ETA; and
(iv) to take any combination of items (ii) and (iii).
(f) All Employees have until XXXXXXXXXX to select one of the options in subparagraph (e) above.
(g) All eligible Employees received an employment letter from the Purchaser outlining a permanent employment offer from the Purchaser.
(h) The Employer has an employee benefit plan, which includes the Employer' s pension plan and long term disability plan. The plan will become a multi-employer plan under which the Purchaser will become a participant. Transferring Employees will remain members of the plan.
(i) Employees transferring to the Purchaser shall maintain the service seniority earned while working for the Employer.
16. Employees that are not represented by either Union will be granted similar employment options and similar rights regarding their unused sick leave cash-out as those Employees represented by the Unions. More specifically:
(a) Non-union Employees will have the options set forth in 6 and 7 above.
(b) Non-union Employees who accept offers of employment with the Purchaser will become employees of the Purchaser effective on the Closing Date.
(c) Non-union Employees will not have their salary reduced by virtue of becoming employed by the Purchaser.
(d) All eligible non-union Employees received an employment letter from the Purchaser outlining a permanent employment offer from the Purchaser.
(e) Transferring non-union Employees will remain members of the Employer's employee benefit plan as described in the request for the advance income tax ruling and the plan will become a multi-employer plan under which the Purchaser will become a participant.
(f) Non-union employees are currently granted XXXXXXXXXX days of sick leave per year. The unused portion of a non-union Employee's annual credited sick leave accrues to the Employee's future benefit. Where a non-union Employee has unused sick leave credits, upon retirement, death or termination of service, the Employee or the Employee's estate is entitled to receive a payment for unused sick leave credits.
(g) Non-union Employees have been granted the following options regarding their accumulated unused sick leave credits:
(i) transfer eligible sick leave credits to the Purchaser under a conversion formula and to continue to use/ and or accrue the converted sick leave credits under the Purchaser's sick leave program;
(ii) cash-out all eligible sick leave credits as described in 16(f) above;
(iii) vest their current cash-out entitlement into the sick leave vesting account of the Purchaser; and
(iv) take any combination of items (ii) and (iii).
(h) All Employees have until XXXXXXXXXX to select one of the options in subparagraph (g) above.
17. All payments for any unused sick leave cash-out that are contemplated herein will be made directly by the Employer to the particular Employee or, at the request of the particular Employee, to an RRSP under which the Employee is the annuitant. As confirmed in a letter from the Purchaser to the Employer dated XXXXXXXXXX (a copy of which was provided with the request for advance income tax ruling), the Purchaser will reimburse the Employer for all such payments.
Proposed Transactions
18. Within XXXXXXXXXX days of the Closing Date, the Employer will make the payments described in 17 above with the amount thereof calculated as described in 9 and 10, 13 and 14 or 16 above, as the case may.
19. Following the payments by the Employer to the Employees or to RRSPs under which the Employees are annuitants, as described in 18 above, the Purchaser will reimburse the Employer as noted in 17 above.
20. The purpose of the Proposed Transactions is to compensate the Employees for their unused sick leave cash-out on the loss of their office or employment with the Employer.
26. To the best of your knowledge and the knowledge of the Employer and the Purchaser, none of the issues involved in this ruling are:
(a) in an earlier return of the Employer, the Purchaser, or the Employees, or any person related to the Employer, the Purchaser or the Employees;
(b) being considered by a tax services office or tax centre in connection with a previously filed tax return of the Employer, the Purchaser, the Employees, or any person related to the Employer, the Purchaser or the Employees;
(c) under objection by the Employer, the Purchaser, the Employees, or any person related to the Employer, the Purchaser or the Employees;
(d) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; nor
(e) the subject of a ruling previously issued by the Directorate to the Employer, the Purchaser, the Employees, or any person related to the Employer, the Purchaser or the Employees.
Rulings
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and the purpose of the proposed transactions, and provided that the transactions are completed as proposed, we rule as follows:
A. The amounts paid to each Employee as described in 18 above will qualify as a retiring allowance as defined in subsection 248(1) of the Act and will be included in the Employee's income under subparagraph 56(1)(a)(ii) of the Act in the year in which it is paid.
B. Each Employee receiving an amount paid in accordance with 18 above, will be able to deduct, within the limits of, and pursuant to paragraph 60(j.1) of the Act, such amount as is designated by the Employee in the Employee's income tax return for the year, not exceeding the lessor of the retiring allowance received in the year and the amount contributed to the Employee's 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 the Employee's income for a preceding taxation year.
C. To the extent that any amount of an Employee's retiring allowance is transferred by the Employer directly to an Employee's RRSP and is within the limits permitted under paragraph 60(j.1) of the Act, the Employer will not be required to withhold on any such amount under subsection 153(1) 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 CCRA provided that the proposed transactions are made by XXXXXXXXXX.
We were not requested to rule on and we have not made any rulings in respect to any amounts that are vested in the Purchaser's sick leave vesting account as described under 11(e)(iii), 15(e)(iii) and 16(g)(iii) above.
Yours truly,
XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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