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.
Can certain payments made under the Ontario Social Housing Reform Act, 2000 be treated as the payment of retiring allowances.
Section 52(9) of the legislation indicates that the employees did not terminate their employment on their transfer between employers.
W. C. Harding
June 18, 2003
Re: Transfer of Employees under the
Ontario Social Housing Reform Act, 2000 (the "OSHRA")
This is in reply to your letter of June 4, 2003, in which you requested a technical interpretation with respect to certain payments that were made to certain individuals that were transferred as a result of the implementation of the OSHRA.
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 submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the Canada Customs and Revenue Agency ("CCRA"). All publications referred to herein can be accessed on the CCRA website at the following address: http://www.ccra-adrc.gc.ca/tax/technical/incometax/menu-e.htm l.
The OSHRA was enacted, in part, in order to transfer the administration of the provincial housing programs from the Province of Ontario to certain municipalities and other entities in Ontario. These entities are referred to in the OSHRA as "service managers". Prior to the legislation's implementation, the housing programs were administered through the Ontario Housing Corporation and through various entities that operated under its jurisdiction. The OSHRA refers to these entities as the "transferors".
Under the OSHRA, service managers are expected to administer the various provincial housing programs. However, the OSHRA provides that if a service manager chooses, the administration may be conducted through entities that are controlled by the service manager. Furthermore, the OSHRA authorizes the Minister of Municipal Affairs and Housing (the "Minister") to create "local housing corporations" to be used by a service manager to administer the programs of a service manager who decides to use a separate corporate entity. The OSHRA refers to any entity assuming the administration of the programs as the "transferee".
As noted above, local housing corporations are established by the Minister in accordance with the OSHRA. However, section 23(7) of the OSHRA provides that upon the incorporation of a local housing corporation, the corporation shall be deemed to have immediately issued a prescribed number of common shares to the particular (prescribed) service manager. It also provides that this prescribed service manager must continuously own the majority of the common shares issued by the corporation at all times. Accordingly, the prescribed service manager, and not the province, would appear to have control of the corporation by virtue of its share holdings. Of itself, this would seem to indicate that the employees transferred from a provincially-controlled entity to a local housing corporation would have terminated their employment with the provincial entity. However, the OSHRA provides for the transfer of employees from a transferor to a transferee through provisions that are largely contained in Part IV of the OSHRA. Rules 1 and 2 of subsection 52(9) thereof, states as follows:
"52(9) If one or more employees of a local housing authority are transferred by a transfer order, the following rules apply:
1. As of the effective date of the transfer, each transferred employee becomes an employee of the transferee and ceases to be an employee of the transferor, the transferee becomes the employer of each transferred employee, and the transferor ceases to be the employer of each transferred employee.
2. For the purposes of an employment contract, a collective agreement and the Employment Standards Act and for all other purposes, the employment of each transferred employee shall be deemed not to have been terminated and the transferred employee shall be deemed not to have been constructively dismissed.
Accordingly, it would appear that the employees who are transferred to new employers will not terminate their employment service for purposes of their employment contracts and application of the Income Tax Act (the "Act"). The implications of these provisions are discussed further below.
In connection with the transfers, the Province of Ontario also provided funds to the City intended to cover the cost of entitlements to any severance and sick leave credits that the transferred employees accumulated while in the employ of the province and that in XXXXXXXXXX and XXXXXXXXXX the City made payments out of the funds to the employees. XXXXXXXXXX.
In order for the payments to be treated as the payment of retiring allowances there has to be a termination of employment. It is our view, however, that because of the provisions of rule 2 of paragraph 52(9) of the OSHRA (referred to above), there was no termination of service of employment of any of the employees transferred from the provincial local housing authority to the municipally-held local housing corporation. Accordingly, it is our view that none of the payments may be treated as payments of a retiring allowance, if the amounts will or have been, paid as a consequence of an employee's transfer to the local housing corporation. The payments should, in our view, be treated as payments of employment income.
With respect to the transfer of the amounts to RRSPs and RPPs, because the payments cannot be treated as payments of retiring allowances, a deduction cannot be claimed as provided under paragraph 60(j.1) of the Act on any transfer of the amounts to an RRSP or an RPP.
We trust our comments will be of assistance to you.
Roberta Albert, CA
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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