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:Treatment of statutory required payments on retirement
Position TAKEN: Stated Department's published general position
Reasons FOR POSITION:Routine reply
Revenue Canada Round Table
Institute of Chartered Accountants of Alberta
May 12, 1994
Question No. 12.
TREATMENT OF STATUTORY REQUIRED PAYMENTS ON RETIREMENT AS RETIRING ALLOWANCES
Where an employee is terminated and receives an amount in circumstances where there is a statutory requirement for the employer to make a payment to the employee at the time of termination, is the amount of the payment considered to qualify as a retiring allowance as defined in subsection 248(1)
Department's Position
The Department's position with respect to such amounts is published in paragraph 4 of Interpretation Bulletin IT-196R2 ("Payments by Employer to Employee") and paragraph 15 of IT-365R2 ("Damages Settlements and Similar Receipts"). To reiterate, a payment made in lieu of earnings for the period for which reasonable notice is required by virtue of the terms of an employment contract (whether implied or explicit) or by statute, will be treated as employment income and not as a retiring allowance.
We recently reviewed the definitions of "termination pay" in sections 1 and 57 of the Ontario Employment Standards Act and "severance pay" in sections 1, 40a and 58 of that Act. We concluded that "severance pay" as provided for under that statute would be considered a retiring allowance while "termination pay" is not. We have also concluded that a payment of money in place of notice of termination as provided under section 62 of the Employment Standards Code of Alberta would not be a retiring allowance. Otherwise, we have not done a comprehensive review of other provincial and the federal employment standards legislation and cannot express any further opinion on this matter.
It is a question of fact whether any portion of a payment made as a consequence of an employee's termination is in satisfaction of the statutory requirement for a payment in lieu of notice. In such circumstances we would generally expect that a portion of a payment would be in lieu of notice.
The Department recently had correspondence wherein it appeared we changed our view on the payment of amounts in lieu of notice. It should be noted that factors distinguishing that case from others were not contained in the letter.
Author: W. Harding
File: 940969
Date: April 28,1994
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