4 June 1992 Internal T.I. 9214497 F - Rca-Retiring Allowance Paid Into An Escrow Account

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.

June 4, 1992

Calgary District Office     Head Office

A. Stubel, Director     Financial Industries   Division

Attention:  Myrna MacKenzie     

24(1)

Retiring Allowance Query

This is in reply to your Round Trip Memorandum dated April 9, 1992 concerning the tax implications where an employer places part of an amount payable to an employee into an escrow account.

You mention that an employee has been given a "leaving or retiring allowance" and has rolled into an RRSP the maximum amount allowable under paragraph 60(j.1) of the Act, leaving a balance of $24(1) due from the employer. 24(1) understands that the employee can elect to receive this balance over a 3-year period and therefore proposes to advise the employer to place the $24(1) in an escrow account on the condition that the employee receive the funds over two to three years. 

24(1) 24(1)     has now asked how the Department would handle the withholdings if the escrow account were to be held jointly in the names of the employer and the employee.

Our Comments

With respect to the entitlement to receive the balance of $24(1) over a three year period, 24(1) may be thinking of the exception in paragraph (k) of the definition of "salary deferral arrangement" in subsection 248(1) of the Act.  However, that paragraph applies only where salary is being deferred and the salary is in the form of a bonus which, if our understanding is correct, is not the case here.  That is, it is our understanding that the $24(1) represents the balance of a retiring allowance due to the employee and our remaining comments are based on the assumption that this understanding is correct.  

A retiring allowance can be paid in instalments over a number of years.  Accordingly, if the employer simply pays the balance to the employee over a two-to-three year period, the employee would include each payment in income in the year received and the year in which a deduction would be available to the employer would be governed by subsection 78(4) of the Act.  However, if the balance of $24(1) is placed in an escrow account, it is our view that this would represent a contribution by the employer to a "retirement compensation arrangement" as defined in subsection 248(1) of the Act.  As such, the provisions of Part XI.3 would apply and the employer would be required to withhold 50% of the contribution pursuant to paragraph 153(1)(p) of the Act and subsection 103(7) of the Regulations.

Please advise if you need further assistance in this regard.

for DirectorFinancial Industries DivisionRulings Directorate