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:
Are two employers related to each other for purposes of section 60(j.1)
Position TAKEN:
It is a question of fact, gave the writer a general description of our position
Reasons FOR POSITION TAKEN:
ITA
5-950431
XXXXXXXXXX M.P. Baldwin
Attention: XXXXXXXXXX
April 4, 1995
Dear Sirs:
Re: Section 60(j.1) of the Income Tax Act
This is in reply to your letter of August 25, 1994, which was forwarded to and received by this Directorate on February 14, 1995, in which you request a technical interpretation regarding the application of section 60(j.1) of the Income Tax Act (the "Act").
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 tax services office. Although we cannot provide a specific answer to your query, we offer the following general comments which are not binding on the Department.
Pursuant to subparagraph 60(j.1)(ii) of the Act, the number of years of employment include years with the employer paying the retiring allowance and years of employment with a "person related to the employer". It is a question of fact whether a person is related to an employer and there are provisions in the Act, such as subsection 251(2) and subparagraphs 60(j.1)(iv) and (v) of the Act, which define certain relationships as satisfying the test for purposes of the paragraph 60(j.1) deduction.
However, in addition to the above, it is the Department's view that retirement or loss of employment by an individual does not include:
a)situations where the individual is subsequently employed by a person who acquires or continues the business of the former employer, or
b)termination of employment (other than mandatory retirement) with an employer followed shortly by employment with an affiliate of the former employer.
For the purposes of determining whether or not termination of employment has occurred the word "affiliate" is intended to be given its broadest meaning and would include any related or associated company that is a member of a group of companies that do not deal at arm's length, notwithstanding that they may not be related or associated for purposes of the Act. It is thus our view that two companies would be affiliated for these purposes where one effectively controls the other by virtue of exercisable stock options, or by virtue of a combination of exercisable stock options and economic influence - if one is a major supplier or customer of the other, for example, and could influence the other's hiring practices. It is also our view that two companies could be affiliated when these companies have an interdependent working relationship which, among other things, permits or encourages the exchange of employment opportunities.
As a result of the above position, if there has been no retirement or loss of office, the employee is required to wait until the employment relationship with the affiliated company is severed before a retiring allowance can be paid which, for the 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.
As noted above the fact situations noted in your letter can only be addressed by way of an advance income tax ruling where all the facts of the transaction are known. We trust that the above 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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