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.
Principal Issues: In order for the extended meaning of, "person related to the employer" to apply for the purposes of subparagraph 60(j.1)(ii), must the provisions of both subparagraphs 60(j.1)(iv) and (v) be satisfied?
Reasons: Either subparagraph 60(j.1)(iv) or (v) can be satisfied in order for the extended meaning of "person related to the employer" to apply.
May 30, 2005
Re: Subparagraphs 60(j.1)(iv) and (v) of the Income Tax Act (the "Act")
This letter is in reply to your letter dated May 2, 2005, wherein you requested our interpretation of the above-referenced subparagraphs of the Act and requested clarification concerning the comments provided in technical interpretation 2004-008088.
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 CRA. All publications referred to herein can be accessed on the CRA website at the following address: http://www.cra-arc.gc.ca/tax/technical/incometax/menu-e.htm l.
The CRA's general views regarding retiring allowances are contained in Interpretation Bulletin IT-337R4, "Retiring Allowances." In particular, we would refer you to the comments provided in paragraphs 19 through 22 of IT-337R4 concerning the interpretation and application of paragraph 60(j.1) of the Act.
Paragraph 60(j.1) of the Act limits the amount that may be claimed as a deduction in computing a taxpayer's income for a taxation year in respect of a retiring allowance received in the year by the taxpayer, and that is transferred to a registered retirement savings plan (RRSP) or a registered pension plan (RPP). In general, the deduction is limited to the least of:
a) the amount of retiring allowance included in the taxpayer's income for the year;
b) the eligible portion of the retiring allowance, less all amounts deducted under paragraph 60(j.1) in respect of retiring allowances paid by the employer or a person related to the employer in the current or a previous year; and
c) the total of all amounts paid by the taxpayer in the year or within 60 days after the end of the year to the taxpayer's RRSP or to an RPP under which the taxpayer is a member
to the extent such amounts were not previously deducted in computing the taxpayer's income for a preceding taxation year.
The eligible portion of a retiring allowance for purposes of paragraph 60(j.1) is calculated as the sum of:
a) $2,000 times the number of years before 1996 during which the retiree was employed by the employer or a person related to the employer; and
b) $1,500 times
i) the number of years before 1989 during which the retiree was employed by the employer or a person related to the employer, minus
ii) the equivalent number of years before 1989 in respect of which contributions to a pension plan or a deferred profit sharing plan by the employer or a person related to the employer vested in the retiree at the time the retiring allowance is paid.
For purposes of calculating the number of years the retiree was employed by the employer or a person related to the employer, a person related to the employer includes persons related under section 251 of the Act, as well as persons related by virtue of subparagraphs 60(j.1)(iv) and (v) of the Act. Subparagraphs 60(j.1)(iv) and (v) extend the meaning of "person related to the employer" to include:
a) any person whose business was acquired or continued by the employer, as well as,
b) any previous employer of the retiree whose service therewith is recognized in determining the retiree's pension benefits.
To clarify, either a) or b) may be satisfied in order for the extended meaning of "person related to the employer" to apply for purposes of subparagraph 60(j.1)(ii) of the Act.
With regard to your questions concerning the reporting of retiring allowances, we would refer you to the comments provided in chapter 5 of guide T4040, RRSPs and Other Registered Plans for Retirement and chapter 2 of guide RC4157, Deducting Income Tax on Pension and Other Income, and Filing the T4A Slip and Summary Form. As the reporting issues raised in your letter do not fall within the mandate of the Income Tax Rulings Directorate, we have forwarded a copy of your letter to the Trust Accounts Division, Revenue Collections Branch, for their reply.
We trust the above comments will be of assistance.
Roberta Albert, CA
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch
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