8 February 1994 Internal T.I. 9337207 F - Retiring Allowance on Transfer Within School Board

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.

RULINGS DIRECTORATE CORRESPONDENCE SUMMARY

PRINCIPAL ISSUES:

Whether payout of sick leave credits on transfer from one position to another with the same employer constitutes retiring allowance.

POSITION TAKEN:

No.

REASONS FOR POSITION TAKEN:

No "retirement" or "loss of employment" has occured.

LEGAL:

FINANCE OPINION:

JURISPRUDENCE:

RCT PUBLICATIONS:

IT-337R2, para. 4(a)

HAA NUMBER:

4749-3

February 8, 1994

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DISTRICT OFFICE      HEAD OFFICEDirector      Rulings Directorate     (613) 957-8953Client Assistance

XXXXXXXXXX

Attention:  XXXXXXXXXX

Payment by XXXXXXXXXX to Employee upon Transfer from Position as Support Staff to Position as Teacher

This is in reply to your memorandum of December 20, 1993, in which you ask for our opinion concerning the above-noted proposed payment and whether it would qualify as a "retiring allowance" within the meaning of subsection 248(1) of the Income Tax Act (the "Act"). You enclosed a copy of a letter of November 19, 1993 from the Board together with copies of the collective agreements between the Board and its teachers and between the Board and its support staff. These documents are returned herewith as you requested. Our understanding of the facts is as follows.

FACTS

The employee was working as a member of the Board's Staff Support Association and applied for and was granted a new position with the Board's Teacher's Association. The employee sent a letter of resignation concerning his old position to the Board effective XXXXXXXXXX and commenced his new position on XXXXXXXXXX

In accordance with the Support Staff Collective Agreement, Article XXXXXXXXXX an employee "who voluntarily resigns and gives two weeks notice or retires" is entitled to severance pay in an amount equal to 50% of the unused accumulated sick leave credits (maximum credits under the Collective Agreement are limited to 200 days - Article XXXXXXXXXX).

The Board has asked the Department to advise whether such severance pay is a "retiring allowance" within the meaning of subsection 248(1) of the Act and, therefore, eligible for a rollover to the employee's registered retirement savings plan pursuant to paragraph 60(j.1) of the Act.

INCOME TAX ACT PROVISIONS AND INTERPRETATION

To summarize subsection 248(1) of the Act, a "retiring allowance" is an amount received 1) upon or after retirement of a taxpayer from an office or employment in recognition of his long service, or 2) in respect of a loss of an office or employment of a taxpayer.

In Interpretation Bulletin IT-337R2 ("Retiring Allowances"), the Department accepts the cessation of employment for any reason as retirement or loss of employment (paragraph 3). In paragraph 4 of the Bulletin, however, it is stated that retirement or loss of office does not include transfer from one office or position to another with the same employer. To be considered a retiring allowance, in other words, the payment from an employer must be made after or in respect of the severance of the employment relationship.

EDUCATION ACT

The Board provided a copy of the Ontario Education Act provisions dealing with sick leave credit gratuities and it is instructive to review the legislation and determine its intent.

A board of education is granted the power to make a payment to "employees or any class thereof" on the "termination of his or her employment" in an amount equal to the employee's salary for one-half the number of days standing to the employee's credit (subsection 180(1) of the Education Act, RSO 1990, c. E.2). If the sick leave gratuity is paid and the employee becomes an employee of another school board, the amount of the gratuity cannot be used for transfer to, or reinstatement under, a sick leave credit plan with the new employer (subsection 180(2) of the Education Act). However, if an employee of one board becomes an employee of another board and no "termination" has occurred (in other words, transfers), the new employer must give the employee credit for the sick leave credits under the new employer's plan (subsection 180(4) of the Education Act). Furthermore, an employee, who is transferred from a municipality or a "local board" which has a sick leave credit plan to a school board, must have his credits reinstated in his favour with respect to his new employment (subsection 180(6) of the Education Act).

It is apparent from a reading of these provisions that employees who continue employment with certain provincial agencies are permitted to carry-over credits earned in previous positions, and cannot accrue credits beyond the maximum permitted under the legislation merely by changing jobs. The legislation, however, does not specifically address the case at hand since no provision is made for a transfer of credits where an employee changes jobs but continues to work for the same employer.

CONCLUSION

In our view, the employee who transfers from a staff support position to a teaching position with the same school board, has not retired or suffered a loss of employment within the meaning of those words as used in the definition of "retiring allowance". The circumstances of the case come clearly within the description in paragraph 4(a) of Interpretation Bulletin IT-337R2 and, regardless of the employee's purported compliance with Article XXXXXXXXXX of the Staff Support Collective Agreement, the employee fails to satisfy the requirements of the Act. Any payment received will constitute salary, wages or other remuneration and be included in income pursuant to subsection 5(1) or 6(3) of the Act.

(We note that if the employee had instead transferred from a teaching position to a support staff position, there would be no entitlement to a sick leave credit gratuity in accordance with the Teacher's Association Collective Agreement, Article XXXXXXXXXX A teacher must retire by reason of 1) death, 2) permanent disability, or 3) becoming eligible for a pension, in order to obtain the severance payment under that Agreement.)

You may wish to obtain further information from the Board concerning the status of the employee under the Board's pension plan. If there is a continuation of membership in the pension plan, this would tend to support our opinion that a loss of employment or retirement has not occurred. If funds associated with the pension benefits accrued to the employee must be transferred to a new pension provision or plan or the pension benefits have been commuted, this might be evidence that a loss of employment has occurred. In the latter circumstances, we might reconsider our position and accept the sick leave credit gratuity as a retiring allowance.

for DirectorFinancial Industries DivisionRulings Directorate