23 June 1995 External T.I. 9514175 - RETIRING ALLOWANCE PAID IN INSTALMENTS

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 retiring allowance is disqualified as such if 	paid in instalments.

Position TAKEN:

no

Reasons FOR POSITION TAKEN:

Routine

XXXXXXXXXX 951417

Attention: XXXXXXXXXX

June 23, 1995

Dear Sirs:

Re: Retiring Allowance Paid Over Several Calendar Years

This is in reply to your letter of May 19, 1995, concerning the above-noted topic. Your query relates to a specific individual and transaction. As indicated in Information Circular 70-6R2, we do not express opinions on specific proposed transactions other than as a reply to an advance income tax ruling request.

Although we cannot confirm that any of the payments you have described could be considered a "retiring allowance" within the meaning of subsection 248(1) of the Income Tax Act (the "Act"), we offer the following general comments.

To address your specific concern, the fact that an amount is to be paid in instalments does not, in and of itself, disqualify that amount as a "retiring allowance" as defined in the Act.

If the employee has retired from employment 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 with paragraph 60(j.1) of 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 income tax return for the year;

3.(in the case where the recipient was a member of the employer's pension or deferred profit sharing plan) does not exceed the amount by which $2000 times the number of years employed exceeds all amounts deducted under paragraph 60(j.1) 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 registered retirement savings plan (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 of 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) 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 transferred to the RRSP('s) and deducted under paragraph 60(j.1) does not exceed $40,000.

With respect to the T4A Supplementary, the Source Deductions Division has confirmed that the amounts should be reported as follows: Unlike the instructions for single retiring allowance payments on page 6-17 of the "1993-1997 Employers' Guide to Payroll Deductions: Basic Information", when retiring allowances are being paid over a number of years, the employer should enter in Box 26 the amount of retiring allowance paid in the year ($15,000 in the above example). The employer should also enter code 12 and indicate, given the above example, each year in the "Footnote" area of the T4A Supplementary "Total retiring allowance $60,000, Eligible Amount $40,000, Non-Eligible $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