28 November 1995 Internal T.I. 9530430 - 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:

1. For the purpose of calculating the amount of a retiring allowance that may be transferred to an RRSP does one use the number of years of service within and without Canada.

2. Would one also include years of service rendered to a wholly owned subsidiary?

Position:

The number of years service rendered both the Canadian employer and its wholly owned foreign subsidiary while a resident and a non-resident of Canada are included.

Reasons:

1. The use of the words "... by the employer..." in paragraph 60(j.1) permits the employer to be situated inside and outside of Canada.

2. The use of the words "...person related to the employer..." in clause 60(j.1)(ii)(A) encompasses all related persons pursuant with subsection 251(2).

TAX EXECUTIVE INSTITUTE
November 1995

Question - IX

QUALIFYING SERVICE IN DETERMINING THE AMOUNT OF A
RETIRING ALLOWANCE ELIGIBLE FOR TRANSFER TO AN RRSP

Subparagraph 212(1)(j.1)(ii) provides an exemption from Part XIII withholding tax in respect of a retiring allowance transferred on behalf of a non-resident person to a Registered Retirement Savings Plan (RRSP). The portion of the retiring allowance that is eligible for transfer to an RRSP pursuant to clause 60(j.1)(ii)(A) of the Act is to be determined by reference to the number of years during which the employee or former employee was employed by the employer or a person related to the employer. For purposes of calculating the portion of the retiring allowance eligible for transfer to the RRSP, are all years of service used (i.e., service within and without Canada) or only the years of service while the individual was resident in Canada and employed by the former employer? Assume that the non-resident person is in receipt of a retiring allowance paid by a former Canadian employer. The non-resident had both resident employment service (i.e., employment in Canada by the Canadian employer) and non-resident employment service (i.e., employment by a wholly owned subsidiary of the Canadian corporation during which time the individual was a non-resident of Canada).

Department's Position

The use of the words "... by the employer ..." in paragraph 60(j.1) of the Act permits the employer to be situated inside or outside of Canada. In addition, the use of the words "... person related to the employer..." in clause 60(j.1)(ii)(A) of the Act encompasses all persons who are related to each other in accordance with subsection 251(2) of the Act. This includes a wholly owned subsidiary of the employer.

Therefore, when determining the number of years of employment for purposes of clause 60(j.1)(ii)(A) of the Act, one would include the number of years of service the employee rendered to both the Canadian employer and its wholly owned foreign subsidiary while the employee was both a resident and a non-resident of Canada. This would be the case even though the portion of the retiring allowance which relates to a period of time during which the employee was not a resident of Canada and not employed in Canada, would not be subject to Part XIII tax pursuant to subparagraph 212(1)(j.1)(i) of the Act.

Author: Frank Gillman
File: 953043
Date: November 28, 1995