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 service with a previous employer (who was previously related to the current employer but was not related at the time the employee went to work for the current employer) can be counted for purposes of determining the eligible amount of a retiring allowance under 60(j.1).
Position TAKEN:
No - only points of time to determine related status is time at which retiring allowance is paid by the employer and time at which employee leaves previous employer to work for current employer. This position does not apply to interpretation of definitions in 60(j.1)(iv) and (v) which deem parties to be related upon existence of a state of affairs.
Reasons FOR POSITION TAKEN:
Wording of legislation and interpretation that employment continues when one goes go to work for an affiliate.
XXXXXXXXXX 941728
Attention: XXXXXXXXXX September 12, 1994
Dear Sirs:
Re: Paragraph 60(j.1) of the Income Tax Act
This is in reply to your letter of June 24, 1994, in which you ask us to confirm that in order to count years of service with a previous employer under the above-noted provision, the former employer must be related to the payer employer during the years of employment and not at the time the retiring allowance is paid. Unless as otherwise stated all references to the Income Tax Act are to the Income Tax Act S.C. 1970-71-72, c. 63 as amended, consolidated to June 10, 1993 - the "Act".
In your example, an individual works for Employer 1 when it is related to Employer 2. Employer 2 then severs its connection with Employer 1 and is no longer a related person under the Act. The individual quits his job with Employer 1 and obtains employment with Employer 2. In your view the eligible amount of a retiring allowance paid by Employer 2 can include amounts under clauses 60(j.1)(i)(A) and (B) of the Act in respect of years of service with Employer 1.
It is our view that Employer 2 must be related to Employer 1 either at the time the retiring allowance is paid by Employer 2 or at the time the employee terminates the first employment and obtains the second employment.
To explain the first position, the preamble of paragraph 60(j.1) refers to an amount "paid by an employer"; the formula in clauses (A) and (B) of the provision then refers to the number of years employed "by the employer or a person related to the employer". In the absence of wording such as "a person who is or was related to the employer", it is our view that the existence of the related status must be determined in the year the employer pays the retiring allowance which is the only point in time fixed in the provision. The reference to "years during which" refers to the employment and not to the relationship between two or more employers.
To explain the second position, the Department considers an employment to continue in the situation where an employee leaves an employment and goes to work for an affiliate. In these circumstances, as explained in paragraphs 3 and 4(b) of Interpretation Bulletin IT-337R2 ("Retiring Allowances"), a payment received from the former employer will not be considered a "retiring allowance". Therefore, the employee is required to wait until the employment relationship with the affiliate is severed before a retiring allowance can be paid which, for purposes of paragraph 60(j.1) of the Act, takes into account all the years of service with the affiliated employers. Please note that for the employers to be considered to be related at the relevant time, they must be affiliated continuously from the date the first employment is discontinued until and including the date the second employment is commenced.
We point out that this problem of interpretation is not encountered with the extended definition of "person related to the employer" in subparagraphs 60(j.1)(iv) and (v) of the Act since the definition refers to a past event ("was acquired or continued") or a current state of affairs ("is recognized") and the state of being related at law under section 251 of the Act is irrelevant.
Although the foregoing comments are an expression of opinion only and are not binding on the Department, we trust they explain our position satisfactorily.
Yours truly,
for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch
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