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.
St.Catharines District Office 16 Financial Industries DivisionMr. Don Hallam Client Services
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Whether amount paid constitutes a "retiring allowance"
This is in reply to your Memorandum of May 18, 1993 and our telephone conversation of June 9, 1993 concerning the above-mentioned subject.
Facts
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Law
Both paragraphs 248(1) (definition of retiring allowance) and 6(3) of the Income Tax Act (the "Act") could be applicable in the present situation.
Opinion
The factors that indicate that a loss of employment has occurred are, for example, that during the period of layoff, the XXXXXXXXXX has no right to any pension benefits nor to any other normal employee benefits.
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Paragraph 30 (c) of the Canada Labour Standards Regulations provides that "a lay-off of an employee shall be deemed not to be a termination of his employment by his employer where
(c) the term of the lay-off is more than three months and the employer
(i) notifies the employee at or before the time of the lay-off that he will be recalled to work on a fixed date or within a fixed period neither of which shall be more than six months from the date of the lay-off and
(ii) recalls the employee to his employment in accordance with subparagraph (i);"
Pursuant to said paragraph of the above Regulations, the laid-off status of the XXXXXXXXXX would be considered as being a termination of employment when it has exceeded six months from the date of the laid off.
It is always a question of fact whether an individual has suffered the loss of an office or employment. 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 employer in respect of loss of 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.
On the other hand, 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 former employer. Accordingly, an amount received by the employee on account of his retirement in such circumstances 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 can only be determined after all the facts and the terms and conditions of the contract have been considered.
It is to be noted that a retiring allowance need not be paid in a lump sum amount to be considered a retiring allowance; it may also be paid over a period of time, that is several months or years by way of fixed periodic amounts.
In the present situation, there is no formal undertaking that the XXXXXXXXXX will be recalled but only the possibility that such an event may occur. Furthermore, as indicated above, the XXXXXXXXXX has no right to any benefit that an employee would usually enjoy. It is our opinion that in such circumstances the amount paid could be considered a "retiring allowance" as that expression is defined in subsection 248(1) of the Act. Also, the characterization of the amount would not, in our opinion, be changed if the employee is in fact subsequently rehired.
For an amount to be deductible pursuant to paragraph 60(j.1) of the Act, it must represent such part of the aggregate of all amounts each of which is an amount paid to the taxpayer by an employer, as a retiring allowance, and must be included in computing the taxpayer's income for the year by virtue of subparagraph 56(1)(a)(ii) of the Act. Subparagraph 60(j.1) of the Act specifies the maximum amount that can be transferred as a premium in a registered retirement savings plan.
Jurisprudence
It has been well established by the common law that wherever there is a particular provision and a general provision enactment in the same statute, and the latter, if taken in its most broadest sense, would overrule the former, then the particular provision must be applied and the general provision must be taken not to apply in these specific circumstances. (M.N.R. v. Chrysler Canada Ltd. et al 1992 DTC 6346 at 6348)
If it was not for this principle, the application of the two provisions in question, subsections 248(1) and 6(3) of the Act, would give conflicting results. Subsection 4(4) of the Act prevents the double taxation in such circumstances but does not indicate which rule prevail, that is the general or the particular rule.
Based on this principle, in the present situation, it would therefore be subsection 248(1) of the Act, that gives the definition of "retiring allowance", that would apply, and not subsection 6(3) of the Act.
Other Comments
Proposed paragraph 60(n)(i.01) of the Act (Draft legislation - December 1992) adds repayments of retiring allowances included in income under subparagraph 56(1)(a)(ii) of the Act to the list of deductible repayments. This amendment applies to repayments of retiring allowances made after 1990.
We trust the above comments will be of assistance to you. Should you require additional information, please contact Maureen Shea-DesRosierss at the above-mentioned telephone number. XXXXXXXXXX
Chief Financial, Leasing and Deferred Income Plans Section Financial Industries DivisionRulings Directorate
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