22 July 2009 External T.I. 2009-0314971E5 - transfer of retiring allowance to an RRSP

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:

1 - was the employee employed by one or two employers and if 2, are they related employers or are they deemed to be related employers?

2 - Is the employee entitled to the $1,500 per year for service before 1989 available under 60(j.1)(ii)(B) in addition to the $2,000 per year for service before 1996 available under 60(j.1)(ii)(A)?

Position:

1 - The employee had one employer.

2 - No.

Reasons:

1 - The employee has one employer being the crown in right of Canada.

2 - In general, the additional $1,500 transfer is available for each year or part year (described in 60(j.1(ii)(A) that a taxpayer was employed by the employer (or a person related to the employer) prior to 1989 for which the employer's (or a person's related to the employer's) contributions to a RPP or DPSP had not vested in the taxpayer at the time the retiring allowance is paid.

								2009-031497
XXXXXXXXXX 							Wayne Harding
(613) 957-9769
July 22, 2009

Dear XXXXXXXXXX :

Re: Calculation of the Eligible Portion of a Retiring Allowance

This is in response to your email of March 24, 2009, wherein you requested our comments on the eligible amount of retiring allowance that can be transferred to a registered retirement savings plan (an "RRSP").

We understand that you were a member of the Canadian Armed Forces from XXXXXXXXXX , at which time you joined the Royal Canadian Mounted Police (RCMP). We also understand that when you transferred to the RCMP in XXXXXXXXXX , you received a severance payment.

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. For more information concerning advance tax rulings, please refer to Information Circular 70-6R5 dated May 17, 2002. Where the particular transactions are completed, the enquiry 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 Revenue Agency ("CRA"). All publications referred to herein can be accessed on the CRA website at the following address: http://www.ccra-adrc.gc.ca/formspubs/menu-e.html.

The CRA's general views regarding retiring allowances are available on the internet and are also explained in Interpretation Bulletin IT-337R4, Retiring Allowances. Paragraphs 19 through 22 of IT-337R4 discuss the interpretation and application of paragraph 60(j.1) of the Income Tax Act (the "Act") in detail.

Subject to certain limitations, paragraph 60(j.1) of the Act allows a taxpayer to deduct an amount in computing the taxpayer's income for a year where all or a portion of a retiring allowance that was received in the year by the taxpayer is contributed to the taxpayer's RRSP. Among other limitations, subparagraph 60(j.1)(ii) of the Act limits the amount that may be deducted under the paragraph to the total of:

a) $2,000 multiplied by the number of years before 1996 during which an employee for whom the payment was made was employed by the employer or a person related to the employer; and

b) $1,500 multiplied by (i) the number of years before 1989 during which the employee 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 of the employer or a person related to the employer had vested in the employee at the time the retiring allowance was paid.

It is the CRA's view that for the purpose of determining the number of years service under 60(j.1), all service with the Federal Government, including service in the Canadian Armed Forces (including Reserve service), the R.C.M.P., and in the public service, is considered employment with the same employer. Accordingly, in a situation such as the one described above, a taxpayer would be entitled to deduct $2,000 for each year or part of a year of service between 1978 and 1995 (inclusive) or $36,000 (18 x $2,000).

In general, the additional $1,500 provided under subparagraph 60(j.1)(ii) of the Act can only be transferred to an individual's RRSP for each year or part of a year, prior to 1989, that is included in the above calculation, for which the employer's (or a person related to the employer's) contributions to a pension plan or a deferred profit sharing plan have not vested in the employee at the time the retiring allowance is paid. Accordingly, if any of the employer's contributions held in a pension plan of the employer for any of those years continued to be held in the plan, were transferred to and continue to be held in another pension plan of the employer on behalf of the employee or were paid to the employee, and those benefits were vested in the employee at the time the retiring allowance was paid by the employer, then the additional $1,500 per year cannot be claimed under 60(j.1)(ii)(B) of the Act.

It should be noted that subparagraph 60(j.1)(ii) of the Act reduces the amount that may be deducted if a deduction has been previously claimed under paragraph 60(j.1) in the year or in a prior year with respect to the receipt of a retiring allowance that was paid to the taxpayer by the same employer or by an employer that is related to the employer.

We trust the above comments will be of assistance.

Yours truly,

Mary Pat Baldwin, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch