15 February 1996 External T.I. 9532855 - 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:

whether severance pay, bonus for staying on considered retiring allowance

Position:

Not a retiring allowance

Reasons:

amount not paid for loss of employment

									5-953285
XXXXXXXXXX							M. Shea-DesRosiers

Attention: XXXXXXXXXX

February 15, 1996

Dear Sir/Madam:

Re: Employment Income or Retiring Allowance

This is in reply to your Fax of November 13, 1995 which was sent to the Ottawa Tax Services Office who forwarded it to us for reply. We apologize for the delay in replying to your letter.

You enquire as to whether particular payments such as severance pay, transitional bonus, and accumulated sick leave would qualify as a retiring allowance as that term is defined in paragraph 248(1) of the Income Tax Act (the "Act").

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. Where the particular transactions are completed, as in your case, the enquiry should be addressed to the relevant Tax Services Office. However, we can offer the following general comments which may be of assistance to you.

To be a retiring allowance, the amount must be received upon or after retirement or be paid in respect of a loss of an office or employment. A payment received on termination of an office or an employment, whether in a lump sum or on a periodic basis, is often capable of being characterized as both employment income and retiring allowance. The distinction the Department makes between the two types of payments relies on the purpose of the payment - does the amount represent salary due under the contract of employment or rather compensation for the loss of employment?

Where an employer offers all his employees on the date of termination of employment a severance pay, said amount will be considered a retiring allowance. If said employer offers the same employees an extra severance pay and a bonus for remaining until a certain date, said amounts will be considered employment income since it is given for the purpose of keeping their employment, not for the loss of it.

As for the payment of accumulated sick days to employees who terminate employment, as stated at paragraph 5 of Interpretation Bulletin IT-337R2 "A payment in respect of unused sick leave credits qualifies as a retiring allowance". Where conditions are to be met to receive a payment of unused sick leave such as staying until a certain date or being terminated by the employer between a certain period, such payment would still be considered a retiring allowance.

The above comments are not rulings and, in accordance with the guidelines set out in Information Circular 70-6R2 dated September 28, 1990, are not binding on the Department. We trust however that they will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch