26 April 1994 Internal T.I. 9408847 - RETIRING ALLOWANCE & LIEU OF NOTICE PAYMENT

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:

Whether payment in lieu of notice is a retiring allowance.

Position TAKEN:

No. (However payment re sick leave and payment in lieu of job relocation counselling are retiring allowances.)

Reasons FOR POSITION TAKEN:

See 5-931650, 5-932879.

			April 26, 1994

	Kingston District Office	Head Office
	CPP/UI Rulings					Rulings Directorate
E. Musson	J. Stalker
	Director	(613) 957-8953
	Attention:  Bill Depew

			940884

XXXXXXXXXX

We are writing in reply to your round trip memorandum dated April 5, 1994 concerning the payment made to XXXXXXXXXX It is our view that the amounts received by XXXXXXXXXX in lieu of notice are employment income, and not a retiring allowance. (However, see our comments below on the other amounts received by XXXXXXXXXX).

The Department's position on this matter is published in Interpretation Bulletins IT-196R2 ("Payments by Employer to Employee" - see paragraph 4) and IT-365R2 ("Damages, Settlements and Similar Receipts" - see paragraph 15). To reiterate, a payment in lieu of earnings for the period of reasonable notice which is made by virtue of the terms of an employment contract (whether explicit or implied) will be treated as employment income and not as a retiring allowance, as defined in subsection 248(1) of the Income Tax Act (the "Act"). Requirements of the provincial employment standards legislation, such as the minimum notice to be given on termination, are implied terms of the employment contract.

If the parties agree during the negotiations after termination that the employee is entitled to a notice period greater than that provided by employment standards legislation, then a payment in lieu of such additional notice is also employment income since the employee's right to it was an implicit term of the employment contract.

XXXXXXXXXX

Such a payment can be distinguished from a payment in respect of loss of employment by reason of the purpose of the payment. The purpose of a payment in lieu of notice is to replace earnings which would otherwise have been earned under the contract of employment; a payment in respect of loss of employment is intended to compensate the employee for that loss.

However, it is our opinion that the following amounts paid to XXXXXXXXXX would qualify as retiring allowances as that term is defined in subsection 248(1) of the Act:

(i)The payment of $XXXXXXXXXX in respect of unused sick leave credits qualifies as a retiring allowance (see IT-337R2, paragraph 5); and

(ii)The payment of $XXXXXXXXXX in lieu of job relocation counselling.

In response to XXXXXXXXXX second question, the amounts paid to him in lieu of notice which are characterized as employment income will be included in the calculation of earned income as defined in paragraph 146(1)(c) of the Act.

We trust that our comments will be of assistance to you.

for Director
Financial Industries Division
Rulings Directorate