28 March 1990 External T.I. 74730 F - Retiring Allowance

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:  Interpretation Bulletin Project Number 1507 Retiring Allowance Revision to IT-337R2 - Version 13

We have reviewed version 13 of the draft revision to the above noted bulletin and offer the following comments for your consideration.

(1)     Page 6, paragraph 7 

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     We enclose a copy of Decision Summary 6123-7 and a letter from Current Amendments Division dated July 8, 1986, which indicates a tax policy perspective on this issue.  In our view the reimbursement of legal fees directly related to the litigation can be distinguished from other costs such as psychiatric expenses, accounting fees, costs of retraining, etc. which are more directly related to the loss of office or employment.

(2)     Page 6, paragraph 7, lines 1-4

     We suggest that the first sentence be revised as follows: "An amount paid on account of or in lieu of damages or pursuant to an order or judgment of a competent tribunal maybe a retiring allowance provided that the payment is in respect of a loss of office or employment of a taxpayer." As presently worded, the sentence implies that a retiring allowance paid on account of damages will not be damages unless it is in respect of loss of office rather than that an amount paid on account of damages will only be a retiring allowance if it is in respect of loss of office.

(3)     Page 7, paragraph 8, line 18 and page 8, line 13

     We suggest that you delete the phrase "or pension benefit". While legal fees incurred to obtain pension benefits will be accorded the same treatment under paragraph 60(o.l) of the Act as legal fees incurred to obtain a retiring allowance, legal fees are only deductible to the extent that the retiring allowance or pension benefit in respect of which the legal fees were paid was included in income.  The example on page 8 would only be correct if the legal fees were incurred to obtain the pension income as well as the retiring allowance.

(4)     Page 9, paragraph 10, lines 6-13

     We suggest that the phrase "amount paid to an officer or employee" be changed to "amount paid in respect of a retiring allowance of an officer or employee".  If the amount is paid to the officer or employee, there is no need for the phrase "regardless of who actually receives it".

(5)     Page 15, paragraph 12 (d)

     The first sentence reflects a change proposed by us in our previous memorandum.  Since you have changed the example in paragraph 11 to delete the vesting factor, this sentence must be changed.  Our concern is that the distinction between "number of years" and "equivalent number of years" is easily missed.  For the purpose of determining the equivalent number of years referred to in clause 60(j.1)(ii)(B) of the Act, the number of years in which the employer has made a contribution to a pension plan or fund or to a deferred profit sharing plan described in that clause is rounded up to the nearest whole number except in the circumstances described in the last sentence of paragraph 12(d) of version 13 of the bulletin.  If the plan does not exempt the employer from making contributions in the last year of employment and the employer contributes to a pension plan for 6 1/2 years, the number of years in which the employer has made contributions is 7; however if only 60% of those contributions rest with the employee at the termination of his employment, the equivalent number of years will be a fraction (60% x 7 or 4.2).

(6)     Page 16, paragraph 14, lines 8-16

     Since a non-resident does not include a retiring allowance in income under subparagraph 56(1)(a)(ii) of the Act, this sentence is confusing. It appears that the intent of the sentence is to indicate the limits on the amount which may be subject to the waiver of withholding tax and the method of obtaining the waiver. We suggest the following be inserted instead of the second sentence in this paragraph:  "However, the withholding tax may be waived, provided that the amount:

(a)     is paid directly to a registered pension plan or registered retirement savings plan,

(b)     does not exceed the maximum amount that would have been deductible under paragraph 60(j.i), had the non-resident been resident in Canada, and

(c)     is an amount which would have been included in income under paragraph 56(1)(a)(ii) of the Act, had the non-resident been resident in Canada.

Such a waiver may be obtained by completing form NRTA1 "Authorization for Non-Resident Tax Exemption".

We trust our comments will be of assistance to you.

B.W. DathDirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch