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.
PRINCIPAL ISSUES:
An employee retires effective December 31, 1993. At retirement, the employee has earned accrued vacation for 1994, with the entitlement period running from July 1, 1993 to June 30, 1994. In which year is the accrued vacation pay required to be included in the employee's income?
POSITION TAKEN:
It is the Department's view that the amount of the accrued vacation pay at December 31, 1993 is required to be included in an employee's income for the year that is the earlier of the year in which the accrued vacation pay is paid to the employee and the year the employee has constructively received payment thereof. The amount of the accrued vacation pay would be regarded as being constructively received in the 1993 taxation year where the amount was available to the employee in the 1993 taxation year but the employee chose not to receive it physically until the following year. On the other hand, if the amount was paid to the employee in 1994 and the amount was not due until that year, it is the Department's position that the amount of the accrued vacation pay would be included in the employee's income for 1994.
REASONS FOR POSITION TAKEN:
The position is based on previous positions taken by the Department.
DRAFT
Tax Executive Institute December, 1993
Question No. 15
ACCRUED VACATION PAY—TAXABILITY IN YEAR OF RETIREMENT
An employee retires effective December 31, 1993. At retirement, the employee has earned accrued vacation for 1994, with the entitlement period running from July 1, 1993 to June, 1994. The retirement date remains December 31, 1993 (i.e., rather than extending the employment date until the accrued vacation time is depleted).
The accrued vacation represents a current statutory legal obligation of the employer and is deductible in 1993 for income tax purposes pursuant to paragraph 18(1)(a) of the Income Tax Act. Will RC require an employer to pay a retiring employee the accrued vacation entitlement in the year of retirement (i.e., 1993), thereby being taxable to the employee in 1993? If the payment is made in the following year (i.e., within the first 180 days of 1994), will it be taxable in 1994?
Department's Position
It is the Department's view that the amount of the accrued vacation pay at December 31, 1993 is required to be included in an employee's income for the year that is the earlier of the year in which the accrued vacation pay is paid to the employee and the year the employee has constructively received payment thereof. The amount of the accrued vacation pay would be regarded as being constructively received in the 1993 taxation year where the amount was available to the employee in the 1993 taxation year but the employee chose not to receive it physically until the following year. On the other hand, if the amount was paid to the employee in 1994 and the amount was not due until that year, it is the Department's position that the amount of the accrued vacation pay would be included in the employee's income for 1994.
Author: M. Eisner File: 933356 Date: November 23, 1993
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1993
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1993
Email this Content