27 October 1987 Income Tax Severed Letter 5-3988 - [Definition of "Retiring allowance" in Subsection 248(1) of the Income Tax Act]

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.

Peter K. Noack (613)957-8963

October 27, 1987

Dear Sirs:

We reply to your letter of September 24 concerning the application of the definition of the term "Retiring allowance" in subsection 248(1) of the Income Tax Act (Act) in circumstances that you describe as follows.

A Canadian-controlled private corporation proposes to establish a plan whereby when a full-time manager retires from the company, he will be offered an option to return to the company after a three-month period to a non-management position, either part- or full-time. During this three-month period, the individual will sever all ties with the company in the form of salary and most benefits. It is the intention of the company to maintain extended health coverage for members of the retiring person's family during this three-month period. The employees are retiring due to age.

We assume that the employees will receive the payment that you consider a "Retiring allowance" for the purpose of the Act at the time they leave for the three-month period.

We prefer to answer questions about the tax consequences of a proposed plan in the form of an advance income tax ruling taking into consideration all the facts including the terms of the plan and any other relevant agreements. Nevertheless, we are prepared to make the following general comments.

To be a "Retiring allowance" the payment must be received upon or after retirement or must be paid in respect of a loss of an office or employment. An employee who has received a payment upon leaving his employment with the option to return after his leave cannot be said to have lost his employment. In circumstances similar to those you describe, an employee would not have ceased being employed until the expiry of his option to return to his employment at the end of his leave. A payment received upon commencement of a period of unpaid leave does not qualify as a "Retiring allowance", because it was not received upon or after retirement.

Yours truly,

Wayne Douglas

for Director Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch