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.
Whether severance payments received in instalments are taxable as retiring allowances as received.
Reasons FOR POSITION TAKEN:
Routine - see 931885 re instalments; IT-337R2 re early retirement incentive payments as retiring allowances.
October 27, 1994
Re: Deferral of Lump Sum Severance Payments
This is in reply to your facsimile transmission of October 20, 1994, in which you ask whether instalments of a severance payment will be taxable in the year received or if the full amount of the severance payment will be taxable in the first year in which the terminated employee can choose to receive the full amount. You explain that under a voluntary reduction program an employee must choose to receive the severance payment
The situation you describe is the subject of an actual proposed transaction and we cannot provide our opinion except in the context of an advance income tax ruling. The following comments are, therefore, general in nature and are not binding on the Department.
A retiring allowance is taxable in the year of receipt pursuant to subparagraph 56(1)(a)(ii) of the Income Tax Act. If it is a term of the employment contract that an employee has the option to take the retiring allowance in instalments or in a lump sum and the option is exercised prior to retirement or termination, then the employee is taxable on receipt of the whole or part of the retiring allowance in the year as received. If it is not a term of the employment contract, the whole amount is taxable in the year it is due regardless of any accommodation by the employer to pay the retiring allowance in instalments over more than one year. An employment contract includes all statutory, written and oral conditions and policies which govern the employment relationship.
You also ask if the severance payment to be received is a "retiring allowance" as defined in subsection 248(1) of the Act. We cannot provide a definitive answer without reviewing the terms for the payment of the severance payment. Enclosed is a copy of Interpretation Bulletin IT-337R2 and we refer you to paragraph 6. It is the Department's general position as stated therein that payments made under early retirement incentive plans are made in respect of a loss of office or employment since such plans are essentially designed to eliminate a number of office or employment positions (albeit on an elective basis). They will, therefore, be considered retiring allowances.
We trust the foregoing comments are of assistance.
Financial Industries Division
Policy and Legislation Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1994
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1994