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 corporation pay a retiring allowance after its business has been sold?
Position:
Yes
Reasons:
Payment in recognition of long service.
960026
XXXXXXXXXX
XXXXXXXXXX, 1996
Dear Sirs:
Re: Advance Income Tax Ruling Request
XXXXXXXXXX
This is in reply to your letters dated XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the above-noted taxpayers. We also acknowledge the information provided during our various telephone conversations (XXXXXXXXXX).
Facts
XXXXXXXXXX is a Canadian-controlled private corporation all of the shares of which are owned by XXXXXXXXXX "Canadian-controlled private corporation" ("CCPC") has the meaning assigned by subsection 125(7) of the Income Tax Act (the "Act").
XXXXXXXXXX is a CCPC and a subsidiary wholly-owned corporation of XXXXXXXXXX "Subsidiary wholly-owned corporation" has the meaning assigned by subsection 248(1) of the Act.
XXXXXXXXXX acquired XXXXXXXXXX shares of XXXXXXXXXX has been an employee of XXXXXXXXXX or related companies since XXXXXXXXXX and he has been the President of XXXXXXXXXX
XXXXXXXXXX has been an employee and Corporate Secretary of XXXXXXXXXX
On XXXXXXXXXX the operating assets of XXXXXXXXXX were sold to an arm's length party. The purchase agreement (the "Agreement") requires XXXXXXXXXX to remain in existence and to hold for a year certain provincial and federal operating licences with respect to its former XXXXXXXXXX business. It is anticipated that during this year the arm's length purchaser will be able to acquire either similar licences or facilitate a transfer of these licences from XXXXXXXXXX to itself.
On XXXXXXXXXX resigned from XXXXXXXXXX office of Corporate Secretary of XXXXXXXXXX in accordance with the terms of the Agreement, and XXXXXXXXXX ceased to be employed by XXXXXXXXXX
XXXXXXXXXX remains the President of XXXXXXXXXX but the company has discontinued its active business and is in existence only for the purpose of maintaining the licences as required by the Agreement.
XXXXXXXXXX still owns one piece of real estate located in XXXXXXXXXX and this real estate is presently being marketed for sale.
The remuneration paid to each of XXXXXXXXXX since 1990 was as follows:
XXXXXXXXXX
XXXXXXXXXX
No contributions have ever been made by XXXXXXXXXX or a related company to a deferred profit sharing plan or a pension plan on behalf of either XXXXXXXXXX in respect of XXXXXXXXXXyears of service with XXXXXXXXXX or a related company. XXXXXXXXXX have never previously been paid a retiring allowance by XXXXXXXXXX or a related company.
Proposed Transactions
XXXXXXXXXX will resign from XXXXXXXXXX office of President of XXXXXXXXXX and XXXXXXXXXX will be replaced by either XXXXXXXXXX only involvement with XXXXXXXXXX will be as sole director of each the corporations for which XXXXXXXXXX will be remunerated either nil or nominal amounts per year.
Subsequent to XXXXXXXXXX resignation from XXXXXXXXXX office of President, XXXXXXXXXX will pay XXXXXXXXXX a retiring allowance of $XXXXXXXXXX respectively.
Subsequent to the transfer of the operating licences referred to in paragraph 5 above, XXXXXXXXXX will be wound up into XXXXXXXXXX All of XXXXXXXXXX assets, being the proceeds of disposition received on the sale of its business assets and the real estate, will be owned by XXXXXXXXXX will not carry on any active business and XXXXXXXXXX as the sole director of XXXXXXXXXX will restrict its activities to the investment or re-investment of excess funds as well as the liquidation of its real estate interests.
Purpose of the Proposed Transactions
XXXXXXXXXX would like to make a payment to each of XXXXXXXXXX to recognize their long service as its President and Corporate Secretary, respectively.
To the best of your knowledge and the knowledge of the taxpayers, none of the issues involved in this ruling request is being considered by a Tax Services Office or Taxation Centre in connection with an income tax return already filed, and none of the issues is under objection or appeal.
Ruling
Provided that the statement of facts and proposed transactions are correct and constitute a complete disclosure of all the relevant facts and proposed transactions, and that the proposed transactions are completed in the manner described herein, we rule as follows:
The proposed payments described in paragraph 12 above will qualify as a retiring allowance as defined in subsection 248(1) of the Act and will be included in the recipient's income in the year of receipt under subparagraph 56(1)(a)(ii) of the Act.
The above ruling, which is based on the Act in its present form and do not take into account any proposed amendments thereto, is given subject to the general limitations and qualifications set out in Information Circular 70-6R2 dated September 28, 1990, and the Special Release thereto dated September 30, 1992, and is binding on Revenue Canada, Customs, Excise, and Taxation provided that the proposed transactions are completed within six months of the date of this letter.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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