16 August 1993 External T.I. 9319665 F - Retiring Allowance

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 Sirs:

RE:  Retiring Allowances

This is in reply to your facsimile transmission of July 8, 1993, concerning the payment of severance to employees who may be called back to work for the employer.

The situations you describe in your letter cover a number of proposed transactions relating to re-employment options for terminated employees and we are unable to provide specific comments except in the context of an advance ruling as described in Information Circular 70-6R2. Where a completed transaction is involved, the enquiry should be addressed to the relevant District Taxation Office. We trust that the following general comments may assist, however.

Where an individual is rehired (on a casual, part-time or contract basis) by the former employer shortly after leaving an office or employment, it is the Department's position that the individual has not retired or suffered a loss of employment or office. Where the individual is engaged shortly after leaving his employment to perform services for his former employer as an independent contractor, whether there has been a loss of employment or office or a retirement will depend on the nature of the contractual arrangement. We are therefore not prepared to confirm, on a general enquiry basis, that this position would not apply to the situations outlined in your letter. We are prepared, however, to consider the matter further in the context of an advance ruling request.

Where, in an arm's length situation, an employee has retired (or been terminated) without any assurance at the time of retirement (or termination) of being rehired by the former employer, and receives from the former employer a payment based on long service (or for loss of employment or office), it is the Department's position that the payment will qualify as a retiring allowance notwithstanding that the parties have an understanding that the individual might be rehired by the former employer at a later time when circumstances have changed. Such a payment will not be considered a retiring allowance, however, where, between the date of the notice of retirement or of termination and the last day of employment, arrangements are made for the employee to be rehired. Our comments concerning independent contracting in the previous paragraph apply equally in these circumstances.

You make reference to the Department's opinion contained in our letter of February 20, 1992. Please note that the fact situation to which the opinion applies concerned an award of damages to an employee resulting from a successful wrongful dismissal action. There was no question that, at the time of the firing or unilateral change of employment, the parties had agreed to the later or different employment of the employee.

This opinion should be considered in light of these peculiar facts.

Our comments reflect an expression of opinion only and are not binding on the Department, as explained in paragraph 21 of Information Circular 70-6R.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate