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:
Can a retiring allowance be paid out over a period of time.
Position TAKEN:
yes
Reasons FOR POSITION TAKEN:
Previous position taken
5-950327
XXXXXXXXXX M.P. Baldwin
April 3, 1995
Dear Sir:
Re: Retiring Allowance
This is in reply to your facsimile of February 7, 1995 in which you request a technical interpretation on whether or not a retiring allowance can be paid out over a period of time.
Written confirmation of the tax implications inherent in particular proposed transactions are given by this Directorate only where the transactions are outlined in an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R2. Questions concerning actual fact situations should otherwise be directed to your district taxation office. Although we cannot provide a specific answer to your query, we offer the following general comments which are not binding on the Department.
If an employee has been terminated and the retiring allowance is being paid in instalments (and is not being paid out of a retirement compensation arrangement), the amount of the retiring allowance may be deducted from income in accordance paragraph 60(j.1) of the Income Tax Act (the "Act") if it:
1)is included in income for the year under subparagraph 56(1)(a)(ii) of the Act;
2) is designated by the recipient in the tax return for the year;
3) (in the case where the recipient was a member of the employer's pension plan or deferred profit sharing plan) does not exceed the amount by which $2,000 times the number of years employed exceeds all amounts deducted under paragraph 60(j.1) of the Act in the year or in previous years with respect to amounts paid by the same employer; and
4)does not exceed the amount paid by the recipient to the RRSP in the year or within 60 days thereof, and only to the extent that it was not deducted in computing the recipient's income for a preceding taxation year.
Therefore, if the retiring allowance is paid in instalments over a number of years, the recipient is not prohibited from designating an amount in accordance with 2 above in any or all of the years the instalments are included in income, so long as the total amount designated does not exceed the amounts calculated in 3 and 4 above. For example, if the recipient will be receiving $60,000 in instalments of $15,000 in each of the next four years and the amount eligible for transfer to an RRSP under paragraph 60(j.1) of the Act is $40,000, the recipient may designate $10,000 of the $15,000 in each year, or any amount in any or all of the four years, so long as the total amount transferred to the their RRSP and deducted under paragraph 60(j.1) of the Act does not exceed $40,000.
In the above situation, the amounts will be reported as follows: unlike the instructions for single retiring allowance payments on page 6-17 of the new "Employers' Guide to Payroll Deductions", when retiring allowances are being paid out over a number of years, the employer should enter in Box 26 the amount of retiring allowance paid in the year (e.g. $15,000). The employer should also enter code 12 and indicate each year in the "Footnote" area of the T4A Supplementary "Total Retiring Allowance" (e.g. $60,000), "Eligible Amount" (e.g. $40,000), "Non-eligible Amount (e.g $20,000).
We trust our comments will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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