12 December 1989 Administrative Letter 59066 F - Retiring Allowances

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.

Dear Sirs:

Re:  Retiring Allowances

This is in reply to your letter of November 10, 1989 and further to our telephone conversation 19(1) Shea-DesRosiers) of November 20, 1989.

24(1)

Your first and second questions, as you explained in the above-mentioned telephone conversation, are both to the same effect:

1. & 2.     If the company gives an employee a notice of termination, for example of one (1) month, but tells the employee if you leave immediately we will pay you for that month in addition to the amount in respect of the termination of employment, will that additional amount constitute a "retiring allowance"?

     It is our opinion that as long as the amount is paid after the employee has left his employment, the sum of money in lieu of the month's notice will be considered a retiring allowance.

3.     As Interpretation Bulletin IT-337R2 states, a payment will be considered a retiring allowance if it is in recognition of long service or in respect of loss of an office or employment. It also stipulates that a payment in respect of unused sick leave credits qualifies as a retiring allowance. These constitute the payments that will be considered as retiring allowances.

4.     Retiring allowances need not be paid in a lump sum amount but may be paid over several months or years by way of fixed periodic amounts.

     With respect to the rollover provisions of paragraph 60(j.1) of the Income Tax Act (the "Act"), subparagraph 60(j.1)(ii) of the Act currently provides for the tax-free transfer of a retiring allowance into an RRSP up to a limit of $2,000 for each year of service in which the employee acquired benefits under a Registered Pension Plan or Deferred Profit Sharing Plan plus and additional $1,500 for each year of service with not such benefits.  Proposed legislation will limit the amount of retiring allowance an individual may rollover to an RRSP to $2,000 per year of service effective for years of service after 1988.

The foregoing is an expression of opinion only, and as such, it is not binding on the Department. We trust, however, that our comments will be of assistance.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate