7 December 1993 Income Tax Severed Letter 9333975 - Retiring Allowances—Interest

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.

                     RULINGS DIRECTORATE
                   CORRESPONDENCE SUMMARY

DOCUMENT TYPE

         OPINION

PRINCIPAL ISSUES:

         DISTINGUISH INTEREST FROM RETIRING ALLOWANCE

POSITION TAKEN:

         NA

REASONS FOR POSITION TAKEN:

         QUESTION OF FACT

FINANCE OPINION:

JURISPRUDENCE:

RCT PUBLICATIONS:

         IT396R

HAA NUMBER:

         HAA7278-1

                                           5-933397
XXXXXXXXXX                                 (613) 957-8953 

Attention: XXXXXXXXXX

December 7, 1993

Dear Sirs:

Re: Severance payments

This is in reply to your letter of November 17, 1993, in which you asked how the payment of interest in respect of a severance payment should be treated for tax purposes.

A payment of the nature you are considering may be a retiring allowance or a payment of interest. As explained at paragraph 12 of the Department's Interpretation Bulletin IT-396R (enclosed), an amount is a payment of interest if an amount is due to or belongs to, another person at the beginning of a period and the payment is computed as interest on the amount of the debt. A payment of interest can not be an transferred to an RRSP as an eligible retiring allowance. On the other hand, a payment is a retiring allowance if it is paid in respect of the former employee's termination of employment and not as interest even if it is computed in the same way interest is normally computed.

The above comments are based on our understanding of the law as it applies in general and may or may not apply to the circumstances of a particular case. They do not form an advance income tax ruling, however, and they are not binding on the Department.

Yours truly,

for Director Financial Industries Division Rulings Directorate