7 January 2003 External T.I. 2002-0177565 - RRSP PREMIUMS PAID WITH TERMINATION PYMT

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 the determination of whether an amount received at termination is a retiring allowance relevant for determining deductibility under subsection 146(5) where the funds are subsequently used to make an RRSP contribution?

Position: No.

Reasons:

Any source of funds may be used to make a contribution to RRSP for purposes of the deduction under subsection 146(5).

XXXXXXXXXX 2002-017756
P. Kohnen
January 7, 2003

Dear XXXXXXXXXX:

Re: Technical interpretation regarding retiring allowances

This is in reply to your facsimile submission of November 28, 2002, requesting our comments regarding the rules regarding termination of employment for purposes of the payment of a retiring allowance. We also acknowledge our telephone conversation (XXXXXXXXXX/Kohnen) of December 20, 2002.

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following general comments, which may be of assistance.

Paragraph 3 of Interpretation Bulletin IT-337R3, Retiring Allowances, states that "Retirement or loss of an office or employment does not include: ... termination of employment with an employer followed by

? re-employment with the employer (on a full or part-time basis) or
? employment with an affiliate of the employer

pursuant to an arrangement made prior to the termination of the employment ...".

This position was reviewed by the Canada Customs and Revenue Agency and it was noted in Income Tax Technical News No. 20 that "an amount may be considered a retiring allowance in some situations where the recipient is re-employed by the same employer or becomes employed with an affiliate, even where the arrangement for such employment was made prior to the termination". Such a determination must be made on a case-by-case base, based on the unique facts in each case.

Such a determination would be relevant if you intended to transfer the amount which you will receive upon termination to a registered retirement savings plan ("RRSP") and claim a deduction pursuant to subsection 60(j.1) of the Income Tax Act (the "Act") for a transfer of retiring allowances. However, as was noted during our telephone conversation, you do not intend to transfer any portion of the amount to be received to an RRSP at this time; but you may decide to use the money received to make a contribution to your RRSP, at a later date, as an RRSP premium rather than a transfer under subsection 60(j.1) of the Act. You noted that you have significant unused RRSP deduction room, but expressed concern about whether such a contribution would be deductible if it were determined that the source of the funds used to make the contribution was not a retiring allowance.

In general, subsection 146(5) of the Act allows a taxpayer a deduction from income for a taxation year an amount equal to the lesser of:

a) the amount of premiums paid into the RRSP under which the taxpayer is the annuitant on or before 60 days after the end of the taxation year, provided that these premiums have not been previously deducted, and

b) the taxpayer's RRSP deduction limit for the year.

It should be noted that income from any source may be used to make a contribution to an RRSP. Accordingly, the determination of whether or not the amount received at your termination was a retiring allowance is of no consequence in establishing whether your proposed contribution to an RRSP will be deductible pursuant to subsection 146(5) of the Act.

We trust that the above comments will be of assistance to you. Please do not hesitate to contact Phillip Kohnen at 957-2093 should you require further information.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate