28 April 1993 Income Tax Severed Letter 9312026 - Retiring Allowance 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.

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.

                                              April 28, 1993

      Source Deductions Division              Financial Industries
      D.O./T.C. Support Services SECTION    Division
                                              Wayne Douglas
      Attention:  C. Paquette                 957-8957

                                              931202

         Employment Standards Act (Ontario) (ESA)
         Retiring Allowances                     

This is in reply to your memorandum of April 15, 1993 and is further to our meeting of April 20, 1993 concerning the above.

Under ESA, an employee who is being laid off but wants to retain rights to be recalled can request that amounts that would otherwise be paid to him as severance pay and/or termination pay be held by the Director of Employment Standards Branch (ESB).

If the employee is recalled by his employer during the relevant period, the amounts held by the ESB are returned to the employer. If the employee is not recalled during the relevant period, or if he/she elects to give up any recall rights, the amounts are paid to the employee.

By virtue of proposed revisions to Regulations 6800 and 6802, the trusts held by the ESB are neither employee benefit plans nor retirement compensation arrangements. Similar legislation of other jurisdictions will be given the same treatment.

Comments

Our views with respect to the above situation is as follows:

1. The amounts, when paid by the employer to ESB, are not income to the employee at that time. Accordingly, we think that no withholdings should be made by the employer with respect to these payments. When the amounts are paid by the ESB to the employee, we would expect that applicable withholdings would be made at that time by the ESB.

2. ESA provides for both "termination pay" under Section 57 and "severance pay" under Section 58 thereof. We had previously determined that the section 58 severance pay is a retiring allowance for purposes of the Act and is therefor eligible for a rollover to an RRSP by the employee under and to the extent permitted by paragraph 60(j.1) of the Act when received from the employer. Since it is reasonable to conclude that the ESB is simply holding the funds as an agent of the employer, it is our view that a severance pay amount received by an employee from the ESB is also an eligible retiring allowance for the purposes of 60(j.1) of the Act.

Note that the section 57 termination pay amount is considered employment income when received either directly from the employer or through the ESB.

We trust that the above is of assistance.

for Director Financial Industries Division Rulings Directorate