30 October 1995 External T.I. 9524925 - STAT SEVERANCE PAY 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 Issues:

Will a statutory severance payment qualify as a retiring allowance?

Position TAKEN:

Question of fact

Reasons FOR POSITION TAKEN:

Depending on statutes, payment could be in lieu of reasonable notice which does not qualify as a retiring allowance.

		952492
XXXXXXXXXX		M.P. Sarazin

Attention: XXXXXXXXXX

October 30, 1995

Dear Sirs:

Re: Severance Pay and Retiring Allowance

This is in reply to your facsimile dated September 19, 1995 wherein you requested our comments as to whether a statutory severance pay would qualify as a "retiring allowance" within the meaning assigned by subsection 248(1) of the Income Tax Act (the "Act").

It appears from your letter that we are being asked to review some form of standard termination letter. We can not provide confirmation of the appropriate tax treatment on various payments without taking into account the particular facts of the situation. Where a transaction is proposed, confirmation of the tax implications arising therefrom will only be provided in the context of an advance income tax ruling request as set out in Information Circular 70-6R2 dated September 28, 1990, and the Special Release thereto dated September 30, 1992, issued by Revenue Canada, Customs, Excise and Taxation. Where a completed transaction is involved, the enquiry should be addressed to the relevant Tax Services Office. We can, however, offer the following general comments.

It is a question of fact whether any portion of a payment made as a consequence of an employee's termination is in satisfaction of the statutory requirement for a payment in lieu of notice or compensation for loss of employment or recognition of long service.

The Department's position with respect to payments, under a statutory requirement, received by a terminated employee is published in paragraph 4 of Interpretation Bulletin IT-196R2 ("Payments by Employer to Employee") and paragraph 15 of IT-365R2 ("Damages, Settlements and Similar Receipts"). To reiterate, a payment made in lieu of earnings for the period for which reasonable notice is required by virtue of the terms of an employment contract (whether implied or explicit) or by statute, will be treated as employment income and not as a retiring allowance.

We have reviewed the definitions of "termination pay" in sections 1 and 57 of the Ontario Employment Standards Act (the "OESA") and "severance pay" in sections 1, 40a and 58 of the OESA. We concluded that "severance pay" as provided for under that statute would be considered a retiring allowance while "termination pay" is not. We have also concluded that a payment of money in place of notice of termination as provided under section 62 of the Employment Standards Code of Alberta would not be a retiring allowance. Otherwise, we have not done a comprehensive review of other provincial and federal employment standards legislation and cannot express any further opinion on this matter.

We trust 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