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:
distinction between retiring allowance and pay in lieu
Position:
Routine explanation provided
Reasons:
Routine
DIRECTOR GENERAL'S OFFICE
AUTHOR
SUBJECT OR CORPORATE CASE FILE
Signed on January 8, 1996
MEMORANDUM FOR DAN COUTURE
SUBJECT: Retiring Allowance
Payments in Lieu of Notice
The purpose of this briefing note is to respond to the November 28, 1995, submission of
XXXXXXXXXX
concerning the Department's position on the treatment of amounts received as pay in lieu of notice, as income from employment. XXXXXXXXXX is of the view that our opinion is not supported by either the wording or the object and spirit of the Income Tax Act (the "Act").
In XXXXXXXXXX opinion, payments made on termination of employment for pay in lieu of notice should be considered as retiring allowances and thus eligible for transfer to a registered retirement savings plan.
In order to characterize a payment as a retiring allowance, the Act requires the payment to be made either in recognition of long service or in respect of a loss of employment. Where an employment contract (including statutes and termination agreements) explicitly or implicitly binds an employer to make a payment in lieu of a period of reasonable notice of termination, the required purpose of the payment for it to be treated as a retiring allowance is not met. The payment is not made to recognize the long service of the employee, nor is it made to somewhat compensate the employee for the loss of employment. The payment is made because the employer is required by contract or law to provide a reasonable notice of termination of employment and did not do so. It is thus appropriately taxed as employment income.
Finally, to ensure fairness, it has been and will continue to be our position that where an analysis of the purpose for a payment will support the treatment of the amount as both a retiring allowance and as employment income, we will accept its treatment as a retiring allowance.
Roy Shultis
Acting Director General
Income Tax Rulings
and Interpretations Directorate
Policy and Legislation Branch
W.C. Harding
957-2131
January 5, 1996
0-953340
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1996
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1996
Email this Content