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.
5-921978
24(1) D.S. Delorey
(613) 957-8953
Attention:19(1)
August 12, 1992
Dear Sirs:
This is in reply to your letter of June 23, 1992, concerning the guidelines set out in Interpretation Bulletin IT-337R2 for the purposes of determining whether or not an individual has received a "retiring allowance" as defined in subsection 248(1) of the Income Tax Act (the "Act).
More particularly, you are concerned with the situation where an individual ceases employment with a particular employer and is subsequently employed by a company that is partly owned by the previous employer. In this regard, you ask for our views on the meaning of the words "shortly" and "affiliate" contained in paragraph 4(b) of IT-337R2. You suggest that "shortly" should be given a definite meaning in terms of months and that "affiliate" should mean a new employer that could be said to be controlled by the former employer, either by virtue of subsection 256(1.2) of the Act or by reference to case law.
Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information
Our Comments
It is a question of fact whether or not an individual has retired or suffered a loss of office or employment. Accordingly, the issue has to be decided on a case-by-case basis having knowledge of all the relevant facts. Once the facts are known, IT-337R2 sets out guidelines to use in determining whether or not the individual has retired or suffered a loss of office or employment based on those facts.
For the purposes of determining whether or not an individual has retired or suffered a loss of office or employment, the term "affiliate" is intended to be given its broadest meaning and would include any related or associated company, or any company that is a member of a group of companies that do not deal at arm's length notwithstanding that they may not be related or associated for the purposes of the Act. We have said, for example, that
- (a) two companies would be considered to be affiliated where one effectively controls the other by virtue of exercisable stock options, or by virtue of a combination of exercisable stock options and economic influence,
- (b) an entity that is one-third owned by each of 3 different entities would be considered to be affiliated with each of those entities, and
- (c) two companies would be considered to be affiliated if they have an interdependent working relationship which among other things permits or encourages the exchange of employment opportunities.
We have also stated that the Department does not consider an employee to have retired where he continues employment with a person who acquired or continues the business carried on by the employee's former employer.
The word "shortly" is not intended to have a distinctive sense. Its usage in combination with the term "affiliate" is a figure of speech intended to indicate that there is continuity between the present position and the terminated position such that the employee cannot be said to have retired or suffered a loss of office or employment. In determining whether or not this continuity exists, it is inappropriate in our view to decide each case based on a certain period of time.
Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information
As indicated above, knowledge of all relevant facts would be necessary in order to determine whether or not an individual has suffered a loss of employment where upon termination of one employment he becomes employed by a company that is partly owned by his former employer. If you have a particular proposed transaction in mind, we are prepared to consider the matter further where the transaction is the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2.
Our comments are an expression of opinion only and are not binding on the Department as explained in paragraph 21 of Information Circular 70-6R2. We trust, however, that they are of assistance.
Yours truly,
for Director
Financial Industries Division
Rulings Directorate
Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information
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© Her Majesty the Queen in Right of Canada, 1992
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© Sa Majesté la Reine du Chef du Canada, 1992
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