26 February 2003 External T.I. 2003-0000585 - TERMINATION ON 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 but does not apply in this particular case.

XXXXXXXXXX 							2003-000058
G. Allen
February 26, 2003

Dear XXXXXXXXXX:

Re: Severance Payments - Termination and Subsequent Re-Employment

This is in reply to your letter dated January 22, 2003 wherein you requested our opinion concerning the tax reporting of severance payments being paid to employees impacted by the closure of a XXXXXXXXXX.

XXXXXXXXXX

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 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 Canada Customs and Revenue Agency's ("CCRA") 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 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