22 June 1994 External T.I. 9412745 - RETIRING ALLOWANCE

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 ISSUE:

Whether an amount received before employment benefits such as long term disability cease is a retiring allowance?

Position TAKEN:

Question of fact but it could be.

Reasons FOR POSITION TAKEN:

5-923432 and 5-923820

				5-941274

XXXXXXXXXX		L. Roy

Attention: XXXXXXXXXX

June 22, 1994

Dear Madam:

Re: Retiring allowance

This is in reply to your facsimile of May 13, 1994 in which you requested our opinion on whether certain payments qualify as a retiring allowance transferable to a Registered Retirement Saving Plan ("RRSP").

All references to statute are to the Income Tax Act S.C. 1970-71-72, c.63, as amended, consolidated to June 10, 1993 (the "Act").

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2, dated September 28, 1990. Where the particular transactions are completed, the enquiry should be addressed to the relevant district taxation office. The following comments are, therefore, of a general nature only, and are not binding on the Department.

Whether an amount paid on termination of employment qualifies as a retiring allowance is a question of fact. In order to make such a determination, it is necessary to review all the relevant facts and documents surrounding a particular situation.

Retiring allowance is defined in subsection 248(1) of the Act to mean an amount received by individual upon or after retirement from an office or employment in recognition of one's long service or in respect of a loss of office or employment.

The Department has taken the position that 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. 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 made in lieu of earnings is to replace earnings which would otherwise have been earned under the contract of employment while a payment in respect of a loss of office is intended to compensate for that loss.

With respect to severance pay under the Employment Standards Act (Ontario) (ESA), the employment relationship is severed before the employee is entitled to the pay. Therefore, it is the Department's position that for the purposes of the definition of "retiring allowance" in subsection 248(1) of the Act, a severance pay under section 58 of the ESA would constitute a retiring allowance since it is compensation for loss of employment.

With respect to the continuation of benefits in situation of loss of an employment, the Department has taken the position that in a case where pension benefits continue to accrue or normal employee benefits continue to be enjoyed by an individual, it is unlikely that employment has ceased even though the individual is not required to report to work. It is our view that amounts received in lieu of earnings during this period of leave from employment would be considered employment income and therefore would not be a retiring allowance.

However, it is the Department's view that continued participation in the former employer's health plan (i.e. drug, dental plan and long term disability) for a restricted period of time would not, in itself, indicate that employment has not been terminated, particularly when the employer's plan specifically permits former employees to be covered under the plan.

We trust the above comments will be of assistance to you. If you have any questions do not hesitate to contact us.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate