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.
R. Nanner (613)957-3494
May 26, 1988
Dear Sirs:
Re: XXXX Income Replacement Plan ("I.R. Plan")
This is in response to your letter of April 14, 1988 requesting our comments on the I.R. Plan introduced by the XXXX for its employees.
You described the I.R. Plan as follows:
On September 13th, 1987 the XXXX /Management and Out-of- Scope employees discontinued their participation in the above plan to participate in a new Short Term/Long Term Disability Benefit Plan. The I.R. Plan provides a lump sum payment to employees in the event of resignation, death or retirement to a pension. In the case of termination for cause, the member does not receive a lump sum payment.
The lump sum payment that may be payable to the Management and Out-of-Scope employees was frozen on September 13th, 1987. It was further agreed that when these payments are made in the future they will be adjusted annually by the XXXX Consumer Price Index. The future lump sum payments are unassignable by the employees and the future payment amount is undeterminable until paid.
You asked us whether a lump sum payment under the I.R. Plan to employees upon their retirement, resignation or death would be considered a "retiring allowance" as defined in subsection 248(1) of the Income Tax Act (the "Act")
As the plan you describe is already in effect, it should be referred to your local District Taxation Office for its income tax implications. We do, however, offer the following general comments.
Where an unfunded plan (which is not otherwise a salary deferral arrangement) provides for a lump sum payment upon resignation or retirement of an employee, the payment is considered to be a retiring allowance. Should the payment be made on the death of an employee (prior to retirement) to his estate or beneficiaries, it would be considered a death benefit.
Either of these payments can be reported on a T4A supplementary slip.
We hope these comments are of assistance to you.
Yours truly,
for Director Financial Industries Division Rulings Directorate
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