7 November 1994 External T.I. 9421525 - 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 the payment of money set aside as retiring allowance can be transferred to an RRSP when paid as a consequence of a policy change from retiring allowance plan to an RRSP Plan?

Position TAKEN:

No an amount received before the actual retirement or loss of employment can not be transferred to an RRSP.

Reasons FOR POSITION TAKEN:

General.

		5-942152
XXXXXXXXXX		L. Roy

Attention: XXXXXXXXXX

November 7, 1994

Dear Sirs:

Re: Retiring allowance policy

This is in reply to your letter of August 22, 1994 in which you requested our opinion on whether certain payments qualify as a retiring allowance transferable to a Registered Retirement Saving Plan ("RRSP").

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. Some of the following comments are, therefore, of a general nature only, and are not binding on the Department.

Paragraph 60(j.1) of the Income Tax Act (the "Act") allows a deduction to a taxpayer who transfers to his RRSP or his Registered Pension Plan an amount received as a retiring allowance, if the retiring allowance is paid by the employer or under a retirement compensation arrangement (RCA) to which the employer has contributed.

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

In the situation described in your letter, it is our view that the amount received by an employee while he remains employed with his employer would not be a retiring allowance. Such an amount would be included in the income but would not be eligible for a transfer to an RRSP pursuant to paragraph 60(j.1) of the Act.

However, we would like to point out that the old retiring allowance plan could be a RCA. An RCA is defined in subsection 248(1) of the Act as, basically, an arrangement by which an employer makes contributions to a custodian (e.g., a bank, trust company or investment dealer) to fund an amount to be paid to an employee on, after or in contemplation of

(a) any substantial change in services rendered by the employee,
(b) the employee's retirement, or
(c) the loss of the employee's office or employment.

Based on the information provided, we cannot determine conclusively if the old retiring allowance plan was a RCA. However, it is the Department's position that where the terms of an arrangement are such that money is held by a custodian in trust, contingently or otherwise, for the benefit of employees, the arrangement may be a RCA.

The tax implications of having a RCA are that the custodian of a RCA is liable to pay a special tax of 50% on all contributions when made and on income earned in the RCA. However, this special tax is refundable as the benefits are received by the employee.

Detailed explanations of the various responsibilities of an RCA custodian and the calculation of Part XI.3 refundable tax are found in the Department's publication entitled "Retirement Compensation Guide". You can contact your District Taxation Office to obtain this guide or any assistance with respect to the tax treatment of an RCA or to determine if your retiring allowance plan is an RCA.

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
Policy and Legislation Branch