21 October 1993 External T.I. 9328525 F - Retiring Allowance Instalments Rolled to RRSP

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.

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Attention:  XXXXXXXXXX

Dear Sirs:

RE:  Paragraph 60(j.1) Deduction With Respect to a Retiring Allowance Paid Over Several Calendar Years

This is in reply to your letter of September 24, 1993, concerning the above-noted subject. Your query relates to an existing and on-going early retirement package under which employees of a certain corporation agreed to take early retirement and have received two instalments of $20,000.00 in each of the last two years and will receive further instalments in the same amount over a maximum of three years. No part of an amount paid has been shown on any employee's T4A Supplementary as eligible for roll-over to the employee's registered retirement savings plan (RRSP).

Your request appears to relate to specific transactions with identifiable taxpayers. As indicated in Information Circular 70-6R2, we do not express opinions on specific proposed transactions other than as a reply to an advance income tax ruling request. Opinions concerning completed transactions should be requested from your district taxation office.

Although we cannot comment on whether any of the payments you have described could be considered a "retiring allowance" within the meaning of subsection 248(1) of the Income Tax Act (the "Act"), we offer the following comments concerning the paragraph 60(j.1) deduction.

Generally, and where the retiring allowance is paid by the employer and is not out of a retirement compensation arrangement, the amount of the retiring allowance may be deducted from income in accordance with paragraph 60(j.1) of the Act if it:

1.     is included in income for the year under subparagraph 56(1)(a)(ii) of the Act;

2.     is designated by the recipient in the income tax return for the year;

3.     (in the case where the recipient was a member of the employer's pension or deferred profit sharing plan) does not exceed the amount by which $2000 times the number of years employed exceeds all amounts deducted under paragraph 60(j.1) in the year or in previous years with respect to amounts paid by the same employer; and

4.     does not exceed the amount paid by the recipient to the RRSP in the year or within 60 days thereof, and only to the extent that it was not deducted in computing the recipient's income for a preceding taxation year.

Therefore, if the retiring allowance is paid in instalments over a number of years, the recipient is not prohibited from designating an amount in accordance with 2 above in any or all of the years the instalments are included in income, so long as the total amount designated does not exceed the amounts calculated in 3 and 4 above. For example, if the recipient will be receiving $60,000 in instalments of $15,000 in each of the next four years and the amount eligible for transfer to an RRSP under paragraph 60(j.1) is $40,000, the recipient may designate $10,000 of the $15,000 in each year, or any amount in any or all of the four years, so long as the total transferred to the RRSP('s) and deducted under paragraph 60(j.1) does not exceed $40,000.

With respect to the T4A Supplementary, we consulted with an official of the Source Deductions Division and he recommends that the employer indicate in the "Footnote" area the total amount of the retiring allowance and the amount eligible for transfer to the RRSP. The employer should not indicate a specific amount that the employee intends to transfer in each year. If you have any further questions concerning the T4A Supplementary and the reporting requirements, please contact Source Deductions at your district taxation office.

We trust our comments will be of assistance to you.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate