7 March 2006 External T.I. 2005-0161621E5 - retiring allowance

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: Questions re retiring allowance.

Position: General discussion.

Reasons: ITA

XXXXXXXXXX 						Denise Dalphy, LL.B
							2005-016162
March 7, 2006

Dear XXXXXXXXXX:

Re: Retiring Allowance

We are writing in response to your e-mail of November 30, 2005 wherein you asked three questions about retiring allowances. We understand that copies of technical interpretation #2003-0028025 and Income Tax Technical News - Number 19 were sent to you on November 30, 2005.

Your questions are as follows:

1. Would remuneration paid over 24 months to a terminated employee be considered a retiring allowance?

2. Would the amounts be exempt from EI premiums?

3. Should the amounts be reported on a T4A?

A retiring allowance is an amount received on or after the retirement of an employee in recognition of long service or in respect of a loss of an office or employment. Whether payments made to a terminated employee are considered a "retiring allowance" within the meaning of subsection 248(1) of the Income Tax Act is a question of fact. Please refer to the discussion in paragraphs 3 to 6 and 13 and 14 of IT-337R4 for assistance in determining whether the payments that you are contemplating making will be a retiring allowance. In our view, the period of time during which payments are made would not, in and of itself, preclude them from being considered a retiring allowance. If the terms of a contract provide that an employee has the choice to receive a retiring allowance in instalments and the employee exercised that option prior to or on retirement or loss of employment, then the employee is taxable on the retiring allowance as it is received.

Some or all of a retiring allowance (the "Eligible Amount") may be transferred to the recipient's RPP or RRSP, as described in paragraph 17 of IT-337R4. While a person paying a retiring allowance is required to report the amount of the retiring allowance on T4A slips for each year that such payments are made, the Eligible Amount is recorded in Box 26, Eligible Retiring Allowances, of the T4A slip and the balance of the retiring allowance is recorded in Box 27, Non-Eligible Retiring Allowances of the T4A slip. You may wish to refer to the guide, RC4157 - Deducting Income Tax on Pension and Other Income, and Filing the T4A Slip and Summary Form.

Finally, when a retiring allowance is paid to a taxpayer, no Employment Insurance contributions are required on this amount.

The Canada Revenue Agency publications mentioned above are available on-line at the following website: http://www.cra-arc.gc.ca. We trust our comments will be of assistance to you.

Yours truly,

Randy Hewlett
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch