26 February 2003 External T.I. 2003-0000195 - RETIRING ALLOWANCE-RE-EMPLOYMENT

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 payment of an amount to an employee to compensate the employee for their loss of employment, where the employee is re-employed with the employer in another position prior to being terminated from the employees' current position, a retiring allowance for purposes of the Act.

Position:

The payment would not be a retiring allowance that is eligible for transfer to the employees' RRSP and a deduction in accordance with paragraph 60(j.1) of the Act.

Reasons:

Position concerning retiring allowances outlined in paragraph 3 of IT-337R3. The position outlined in Technical News 20 was considered in the context of this enquiry and it was determined that it does not apply in this particular case.

XXXXXXXXXX 								2003-000019
G. Allen
February 26, 2003

Dear XXXXXXXXXX:

Re: Retiring Allowance/Severance Pay - RRSP Rollover

This is in reply to your letter dated January 27, 2003, wherein you requested our opinion concerning a severance package you are to receive from XXXXXXXXXX and the possibility of transferring your severance package to your registered retirement savings plan ("RRSP").

We understand from the contents of XXXXXXXXXX's letter dated XXXXXXXXXX, a copy of which was enclosed with your letter, that the XXXXXXXXXX in XXXXXXXXXX will be closing effective XXXXXXXXXX. XXXXXXXXXX's letter outlines the severance package that will be available to unionized hourly employees of the XXXXXXXXXX and indicates that employment opportunities with XXXXXXXXXX's other operations may be available to certain employees.

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. For more information concerning advance tax rulings, please refer to Information Circular 70-6R5 dated May 17, 2002. Copies of information circulars, interpretation bulletins and guides are available at your local Tax Services Office or on the Internet at http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following general comments, which may be of assistance.

A "retiring allowance" is defined in subsection 248(1) of the Income Tax Act (the "Act") to mean an amount received:

(a) on or after retirement of a taxpayer from an office or employment in recognition of the taxpayer's long service, or

(b) in respect of a loss of office or employment of a taxpayer, whether or not received as, on account or in lieu of payment of, damages or pursuant to an order or judgment of a competent tribunal, by the taxpayer or, after the taxpayer's death, by a dependant or a relation of the taxpayer or by the legal representative of the taxpayer.

The full amount of any retiring allowance must be included in the taxpayer's income by virtue of subparagraph 56(1)(a)(ii) of the Act in the year in which it is received. However, a deduction is available under paragraph 60(j.1) of the Act for all or part of a retiring allowance transferred to a registered retirement savings plan ("RRSP") under which the taxpayer is the annuitant. In general, the maximum amount that may be transferred under paragraph 60(j.1) is:

? $2,000 for each year or part year the taxpayer was employed by the employer prior to 1996, and

? $1,500 for each year or part year the taxpayer was employed by the employer prior to 1989 for which the employer's contributions to a pension plan or deferred profit sharing plan had not vested in the taxpayer at the time the retiring allowance is paid.

In addition to the above limit, to obtain a deduction under paragraph 60(j.1), the retiring allowance must be paid into the taxpayer's RRSP in the year the retiring allowance is received or within 60 days after the end of the year, and the retiring allowance must not have been deducted from income in a preceding taxation year.

The Canada Customs and Revenue Agency's general views regarding retiring allowances and severance payments are found in Interpretation Bulletin IT-337R3 entitled "Retiring Allowances". Paragraph 3 of IT-337R3 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 ...".

Consequently, in our opinion, a severance payment made to an employee who will be re-employed at one of XXXXXXXXXX's other locations prior to the employees' termination of employment on XXXXXXXXXX, would not be a retiring allowance that is eligible to be claimed as a deduction in accordance with paragraph 60(j.1) of the Act and transferred to the employees' registered retirement savings plan.

We trust the above comments will be of assistance.

Yours truly,

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