25 March 1994 External T.I. 9333075 - 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.

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.

			5-933307

XXXXXXXXXX M. Séguin

Attention: XXXXXXXXXX

March 25, 1994

Dear Sirs,

Re: 212(1)(j.1) of the Income Tax Act (the "Act")

This is in reply to your letter of November 10, 1993 wherein you requested our opinion concerning paragraph 212(1)(j.1) of the Act in relation to the following hypothetical situation:

-Mr. X, a non-resident of Canada, is employed by Canco, a canadian resident corporation.

-Mr. X used to be resident in Canada; however, he moved to a foreign country a few years ago and is now considered a non-resident of Canada for income tax purposes.

-Mr. X has been employed by Canco for many years and continues to be so employed. His duties of employment are performed both in Canada and abroad.

-Canco is now proposing to pay Mr. X an amount which would qualify as a retiring allowance within the meaning of subparagraph 56(1)(a)(ii) of the Act.

You indicate that given that Mr. X was resident in Canada for many years, all or substantially all of the retiring allowance is considered to be in respect of years of service while Mr. X was resident in Canada and as such, you assume that the exception in subparagraph 212(1)(j.1)(i) of the Act is not applicable. You conclude that where Mr. X is not resident in a treaty country, the withholding rate on a retiring allowance will be 25% of the retiring allowance pursuant to paragraph 212(1)(j.1) of the Act.

Our comments

Generally, we agree with your conclusions in the situation outlined above. The exception in subparagraph 212(1)(j.1)(i) could only apply if both conditions of that provision could be satisfied. Since Mr. X was a resident of Canada for many years, the portion of the payment related to those years could not qualify for the exception. The portion of the retiring allowance relating to taxation years during which M. X was not a resident of Canada at any time would qualify if the retiring allowance related to taxation years during which Mr. X was not employed in Canada or only occasionally employed in Canada. This does not appear to be the case in your situation. However, you may wish to consider the Department's interpretation of the words "occasionally employed in Canada". As stated in Interpretation Bulletin IT-76R2, that expression is generally considered to mean that throughout a particular year, the taxpayer's regular place of employment was outside Canada and his duties in Canada were limited to a few brief visits to carry out the duties of his employment.

We also agree with you that the withholding rate is 25% where the recipient is a resident of a non-treaty country.

The foregoing comments are given in accordance with the practice referred to in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990 and are not binding on Revenue Canada, Taxation.

Yours truly,

for Director
Reorganizations and Foreign Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch