1 December 1995 External T.I. 9527975 - RETIRING ALLOWANCE TERMINATION OF EMPLOYMENT

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 person who retires and then rehired by the previous employer receive a retiring allowance upon retirement?

Position:

Not if they knew that thet were going to be working for the old employer before they left the employment.

Reasons:

Interpretation of "loss of an office or employment" in the definition of "Retiring Allowance".

			5-952797
XXXXXXXXXX		Franklyn S. Gillman

December 1, 1995

Dear Sir/Madam:

Re: Retiring Allowance and Termination of Employment

This is in reply to your letter dated October 16, 1995 wherein you requested clarification as to termination of employment and obtaining casual employment from the same employer when a retiring allowance was received upon termination.

Retiring allowance is defined in subsection 248(1) of the Income Tax Act (the "Act") to mean an amount ... received upon or after retirement from an office or employment in recognition of one's service or in respect of a loss of office or employment. However, as noted in paragraph 4 of Interpretation Bulletin IT-337R2 (copy enclosed):

"Retirement or loss of employment by an individual does not include:

(a)...

(b) termination of employment (other than mandatory retirement) with an employer followed shortly by employment with an affiliate of the former employer, or

(c) ... ."

Where, in an arm's length situation, an employee has retired without any assurance at the time of retirement of being hired by an affiliate, or being rehired by his former employer, and receives from the former employer a payment based on long service, it is the Department's position that this payment will qualify as a retiring allowance notwithstanding that the individual might be hired by the affiliate, or rehired by the former employer, at a later time when circumstances have changed. This position would not apply however, where after the employee is advised that the employment will be terminated, but before the employee is actually terminated and the payment is made, the employer or an affiliate arranges for re-employment or new employment.

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

Enclosure