15 May 1990 Internal T.I. 74627 F - Rights and Things

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.

SUBJECT: Rights and Things

We are writing in reply to your memorandum of January 8, 1990 wherein you requested our technical interpretation concerning two unrelated issues.

Issue 1

It is your view that accumulated sick leave credits received as a result of the death of an employee meet the requirements of subsection 70(2).

As indicated in paragraph 5 of Interpretation Bulletin IT-337R2, Retiring Allowance, a payment in respect of unused sick leave credits may qualify as a retiring allowance, as defined in subsection 248(1) if it is paid upon or after retirement of an employee in recognition of the employee's long service.  Paragraph 4(c) of IT-337R2 indicates that termination of employment as a result of death is not considered to be a form of retirement.  Accordingly, a payment in respect of unused sick leave credits made upon the death of an employee will not qualify as a retiring allowance.  However, in order to extend a more generous tax treatment to these kind of payments arising on death, paragraph 2(b) of IT-301, Death Benefits - Qualifying Payments, indicates that such payments will be regarded as death benefits to be included in income under subparagraph 56(1)(a)(iii).  We would also note that in a situation where an employee ceased employment but died before the payment in respect of unused sick leave credits was received, the subsequent payment will retain its character as a retiring allowance in the hands of the recipient.  Paragraph 9 of IT-337R2 indicates that in such a situation the value of any retiring allowance yet to be received at the time of death may be included in the employee's income for the taxation year of death as a "right or thing" pursuant to subsection 70(2).  The distinguishing feature in this case is that the right crystallized before death rather than upon death.

On the other hand, when an employee terminates employment and a payment is made in respect of accumulated vacation leave not taken prior to the retirement, this payment is considered to be ordinary remuneration and included in the employee's income in the year of receipt pursuant to subsection 6(3).  As you have noted, paragraph 20 of IT-212R2, Income of Deceased Persons - Rights or Things, indicates that where a deceased employee is entitled to be paid for unused vacation leave credits, the amounts thereof are rights or things which are brought into income under subsection 70(2).

In our deliberations on this issue, it came to our attention that some corporations may have plans whereby an employee is entitled to an annual cash payment in respect of sick leave credits earned but not taken in the year.  In our view, such a payment is considered to be ordinary income and should be included in the employee's income in the year of receipt.  Where a deceased employee is entitled to a payment from such a plan, the amount should be treated similarly to unused vacation leave credits and would be brought into income under subsection 70(2) as a right or thing. 

We should note that the change in paragraph 20 of IT-212R2, June 29, 1987, to 'unused vacation leave credits' from unused leave credits was simply a clarification of our position to be consistent with our position in other IT Bulletins and was not a change in our position.

Issue 2

It is your view that a deceased partner is not entitled to a subsection 99(2) election where the partnership's fiscal period terminates as a result of his death.  You note that paragraph 1 of Interpretation Bulletin IT-278R, Death of a Partner or a Retired Partner, indicates that in such a situation the deceased partner's share of the partnership income for that fiscal period is included n his regular return of income for the year of death by virtue of paragraphs 12(1)(1) and 96(1)(f).  In addition, if the partnership had a previous fiscal year-end in the calendar year in which death occurred, a separate return of this income may be filed as provided in subsection 150(4).

Although there is some doubt surrounding this issue, we concur with your interpretation of these provisions as it prohibits the deceased partner from having income to report in a year after the year of death.  We maintain that the deceased partner is not entitled to a subsection 99(2) election regardless of whether the partnership has a previous fiscal period ending in the same calendar year as the death of the partner.

We trust that these comments will be of assistance.

R.E. Thompson for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch