1 November 1990 Ministerial Letter 901588 F - Termination Pay under Employment Standards 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.

SUBJECT:  Termination pay under Employment Standards Act ("ESA") Your file: HAK-4940-1

This is in reply to your memorandum of July 16, 1990, with documents attached, addressed to Specialty Ruling Directorate which was forwarded to us for reply. A further memorandum dated September 28, 1990, was forwarded to us with additional information.

You request our opinion on the three questions asked by 24(1) to the London District Office in its letter of April 9, 1990.

Facts

24(1)  The employees involved have, under the ESA, the option of retaining their recall rights for various lengths of time depending on their seniority with the company. When an employee chooses to retain his recall rights, the company must send the applicable termination pay (net of any deductions at source) to the Director of Employment Standards in trust.

After the funds are in the possession of the Director of Employment Standards, the employee may then make a written request for payment of the termination payment. The employee then loses his right of recall. When payment is made to the employee by the Director, the company is advised in writing of the payment.

You advised us in a telephone conversation (Richardson\Shea-DesRosiers) of October 9, 1990 that the 24(1) referred to in your Memorandum of July 16, 1990, is paid by the employer, 24(1) to the employee at the time the employee receives his termination payment. This interest does not accumulate in a fund but is simply paid outright at the time the Director remits the termination payment to the employee.

COMMENT

We have discussed the above arrangement with the Department of Finance and they concur with our conclusions as follows:

-      the arrangement described above would be an RCA as defined in subsection 248(1) of the Act and therefore the corporation would be required to withhold the refundable tax from any contributions made to the Director, ESA.

-     payments from the Director, ESA, to an individual under the terms of the ESA would be considered a payment from an RCA to be included in income pursuant to paragraph 56(1)(x) of the Act.

-      payments from the Director, ESA, to the corporation under the terms of the ESA would be taxable to the corporation pursuant to paragraph 12(1)(n.3) of the Act.

-     payments received by an individual would be considered to be retiring allowances out of an RCA for the purposes of paragraph 60(j.1) and would be eligible for a roll-over to an RRSP.

-     the amount of interest paid to an individual by the company would be a retiring allowance under paragraph 56(1)(a) and would be eligible for an RRSP roll-over under 60(j.1).

21(1)(b)

We trust the above comments will be of assistance to you.

ChiefDeferred Income Plans & Trusts SectionFinancial Industries DivisionRulings Directorate