22 September 1994 External T.I. 9411805 - RETIRING ALLOWANCE PAID TO U.K. RESIDENT (U4-100-17)

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.

					File #941180

Principal Issues:

Whether a retiring allowance paid to a resident of the U.K. in respect of wrongfull dismissal from Canadian employment falls under Article 15, Article 17 or any other provision in the Canada-UK Convention.

Position TAKEN:

No. Such a retiring allowance does not fall under any provision of the Canada-UK Convention.

Reasons FOR POSITION TAKEN:

The retiring allowance is not a "pension" as defined in paragraph 3 of Article 17 of the UK convention and it is not considered to be "salaries, wages and similar remuneration" for the purposes of Article 15 of the UK Convention. Furthermore, there is no other provision in the Convention which deals with such a retiring allowance.

			941180

XXXXXXXXXX		G. Middleton

Attention: XXXXXXXXXX

September 22, 1994

Dear Sirs:

This is in reply to your letter of April 26 concerning monies paid to a resident of the United Kingdom ("U.K.") in respect of a wrongful dismissal action.

Our understanding of the situation you described is as follows:

An individual was born and raised in the U.K. and he is a British subject. He began working for a company in England in 1987 and he was later transferred to the Canadian parent company ("Canco") on a two year inter-company transfer. A work visa was obtained. He was apparently wrongfully dismissed by Canco in 1991 when he was asked to do duties which would have conflicted with his work visa and which also conflicted with and were in breach of his contract of employment. He left Canada in 1991 with his family and returned to the U.K. He is a resident of the U.K. and he has no intention of returning to Canada. He has indicated that any monies he receives from Canco in respect of the wrongful dismissal will have to be reported as income in the U.K.

You requested our opinion on whether amounts paid by Canco to the U.K. individual in respect of the wrongful dismissal are exempt from tax in Canada.

Based on our understanding of the facts, any amount paid to the non-resident individual in respect of his loss of employment with Canco would be considered to be a "retiring allowance" as defined in subsection 248(1) of the Income Tax Act (the "Act") and would be subject to Part XIII tax at the withholding rate of 25% pursuant to paragraph 212(1)(j.1) of the Act.

Non-residents may elect under section 217 of the Act to pay Part I tax on such retiring allowance. If such an election is beneficial to the U.K. individual, he could make the section 217 election and receive a partial refund of the Part XIII tax withheld on his retiring allowance.

For additional details on retiring allowances and section 217 elections, we have enclosed copies of Interpretation Bulletins IT-337R2 and IT-163R2, respectively.

In our opinion, such a retiring allowance is not dealt with under the Canada-U.K. Income Tax Convention and accordingly, no reduction or exemption from the Part XIII tax on the retiring allowance is provided for under that Convention.

With respect to any amount received by the non-resident individual as an award or a reimbursement in respect of legal expenses paid to collect or establish a right to a retiring allowance in respect of his employment with Canco as described in paragraph 56(1)(l.1) of the Act, it is our view that such an amount is not subject to Part XIII tax.

The above comments represent our general views with respect to the subject matter of your letter. These comments do not constitute an advance income tax ruling and therefore, as described in paragraph 21 of Information Circular 70-6R2, these comments are not binding on the Department.

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

Yours truly,

for Director
Reorganizations and Foreign Division
Rulings Directorate
Policy and Legislation Branch