1 June 1993 Income Tax Severed Letter 9307845 - Eligible Service for Pension 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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

                                                   5-930784
XXXXXXXXXX                                         G. Martineau
                                                   (613) 957-8953

Attention: XXXXXXXXXX

June 1, 1993

Dear Sir/Madam:

This is in reply to your letter of March 12, 1993 concerning the tax implications regarding termination pay paid, in lieu of notice, under the Employment Standards Act, R.S.O., 1990 (ESA).

Section 57 of ESA imposes a minimum number of weeks notice prior to termination depending on the years of employment. During the notice period, an individual is entitled to receive his regular wages. If the employment is otherwise terminated, the individual is entitled to a termination pay by virtue of subsection 57(14) of ESA equal to the regular wages payable over the same number of weeks for which notice was required. In addition, the employer must contribute to the pension plan throughout the notice period on behalf of the employee.

It is our view that such termination pay in lieu of notice received under section 57 of the ESA is employment income taxable under section 5 of the Income Tax Act (the "Act"). Where an amount is taxable under section 5 of the Act, it would be included in the individual's compensation for the purposes of subparagraph 147.1(8)(a)(ii) of the Act.

Where an individual continues to receive income during the notice period that is taxable under section 5 of the Act as employment income, it is our view that the said period would qualify as "eligible service" for the purposes of paragraph 8503(3)(a) of the Income Tax Regulations (the "Regulations"). Where a lump-sum payment received on termination is taxable as employment income and is in lieu of notice, the period of time to which the payment relates would qualify as "eligible service" for the purposes of paragraph 8503(3)(a) of the Regulations.

The pension adjustment under a defined benefit provision of a registered pension plan for an individual who receives such termination pay would be calculated pursuant to subsections 8301(5), (6), (7) and (8) as the case may be of the Regulations.

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