30 April 1993 External T.I. 9306725 F - Leave Plan

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.

XXXXXXXXXX

Attention:  XXXXXXXXXX

Dear Sir/Madam:

RE:  Section 6801 of the Income Tax regulations (the "Regulations") and section 248(1) of the Income Tax Act (the "Act")

This is in reply to your letter of February 26, 1993 wherein you request some clarification concerning subparagraph 6801(a)(v) of the Regulations, and subsection 248(1) of the Income Tax Act (the "Act") pertaining to the definition of retiring allowance.

Pursuant to subparagraph 6801(a)(v) of the Regulations, the arrangement between the employer and the employee must provide that after the leave of absence the employee is to return to his regular employment with the employer, or an employer that participates in the same or a similar arrangement, for a period that is not less than the period of the leave of absence. Where it is reasonable for the employer to expect an employee to fulfill such a commitment but the employee reneges on that commitment, the Act does not impose any penalty on employees who fail to comply with agreements with their employers.

Where an employee who participates in a deferred salary leave plan complies with all the provisions of section 6801 of the Regulations and after his/her leave of absence takes another year of leave without pay with the consent of his/her employer and always has the intention of returning to his/her regular employment at the end of this leave for a period that is not less than the period of his original leave of absence, it is our opinion that the requirements of section 6801 of the Regulations have been met.

You also enquire as to whether a person who has retired and returned to work for the same employer in a casual capacity would still be considered retired. Subsection 248(1) of the Act defines "retiring allowance" to mean an amount received by an individual upon or after retirement from an office or employment in recognition of one's long service or in respect of a loss of office or employment.

It is always a question of fact whether an individual has suffered the loss of an office or employment or has retired. It is the Department's position that, where in an arm's length situation, a long term employee is laid off or has retired without any assurance of being rehired at the time, and receives an amount from his/her employer in recognition of long service or in respect of a loss of an office or employment, such an amount would be considered a "retiring allowance" regardless of the fact that the employee might be rehired, by the former employer, at a later date when circumstances have changed.

In a situation where an employee is rehired by his former employer shortly after leaving an office or employment, it is the Department's position that the employee has not suffered a loss of employment if, at the time the employee retires, it was foreseen that the employee would be rehired by his/her former employer. As a consequence thereof, a payment received by the employee in respect of any such departure would not be considered a retiring allowance.

It is to be noted that the question of whether an employee has really suffered a loss of employment or has retired can only be determined after all the facts and the terms and conditions of the contract have been considered.

The above comments are an expression of opinion only and are not binding on the Department. We trust, however, that they will be of assistance to you.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate