28 March 1996 External T.I. 9604665 - RETIRING ALLOWANCE FOR SERVICE WITH SCHOOLS OF NURSING

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 or not a college is continuing the business of the private and hospital-affiliated schools of nursing. It would have to be determined whether the private and hospital-affiliated schools were in facts businesses for purposes of the Act. This is a question of fact that can only be determined on a ruling basis (see office analysis).

Position:

If they were businesses the college would be continuing business for purposes of 60(j.1)(iv) of the Act. Gave general position with respect to retiring allowance.

Reasons:

Based on how Act reads and past positions in database.

XXXXXXXXXX							5-960466

Attention: XXXXXXXXXX

March 28, 1996

Dear Sirs:

Re: Retiring Allowance for Service with Schools of Nursing

This is in reply to your letter of January 26, 1996 requesting written confirmation of the interpretation and application of the expression "person related to the employer" in paragraph 60(j.1) of the Income Tax Act (the "Act").

Written confirmation of the tax implications inherent in particular proposed transactions are given by this Directorate only where the transactions are outlined in an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R2. Questions concerning actual fact situations should otherwise be directed to your district tax services office. Although we cannot provide a specific answer to your query, we offer the following general comments which are not binding on the Department.

Pursuant to subparagraph 60(j.1)(ii) of the Act, the number of years of employment include years with the employer paying the retiring allowance and years of employment with a "person related to the employer". It is a question of fact whether a person is related to an employer and there are provisions in the Act, such as subsection 251(2) and subparagraphs 60(j.1)(iv) and (v) of the Act, which define certain relationships as satisfying the test for purposes of the paragraph 60(j.1) deduction.

Pursuant to subparagraph 60(j.1)(iv) of the Act, a person related to the employer would include "any person whose business was acquired or continued by the employer". In your letter, the employer is the college and it has to be determined whether or not the college is continuing the business of the private and hospital-affiliated schools of nursing. In order to determine this, it has to be determined whether or not the private and hospital-affiliated schools of nursing were in fact considered to be a business for purposes of the Act. It is a question of fact whether or not these schools of nursing were fact carrying on a "business", and we are not prepared to confirm this on a general enquiry basis. However, if these schools of nursing were considered to be a business for purposes of the Act, it is our opinion that the colleges would be considered to be an employer who continued the business of the schools of nursing.

However, in addition to the above, it is the Department's view that retirement or loss of employment by an individual does not include:

a) where the individual is subsequently employed by a person who acquires or continues the business of the former employer, or

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

For the purposes of determining whether or not termination of employment has occurred the word "affiliate" is intended to be given its broadest meaning and would include any related or associated company that is a member of a group of companies that do not deal at arm's length, notwithstanding that they may not be related or associated for purposes of the Act. It is thus our view that two companies would be affiliated for these purposes where one effectively controls the other by virtue of exercisable stock options, or by virtue of a combination of exercisable stock options and economic influence - if one is a major supplier or customer of the other, for example, and could influence the other's hiring practices. It is also our view that two companies could be affiliated when these companies have an interdependent working relationship which, among other things, permits or encourages the exchange of employment opportunities.

As a result of the above position, if there has been no retirement or loss of office, the employee is required to wait until the employment relationship with the affiliated company is severed before a retiring allowance can be paid which, for the purposes of paragraph 60(j.1) of the Act, takes into account all the years of service with the affiliated employers. Please note that for the employers to be considered to be related at the relevant time, they must be affiliated continuously from the date the first employment is discontinued until and including the date the second employment is commenced.

With respect to your question on subparagraph 60(j.1)(v) of the Act, we recently stated in the Income Tax Technical News, volume 7 the following:

Person related to the employer - paragraph 60(j.1)

For purposes of the deduction, the eligible amount of a retiring allowance contributed to an RRSP is calculated by reference to the aggregate number of years the retiree was employed by the employer paying the retiring allowance and years employed by "a person related to the employer."

Recently, we clarified our position concerning the number of years of service which may be counted where the former employer is deemed to be related through recognition of such former employment under the current pension plan. Where the employer's pension plan recognizes any part of the service with the former employer, then all the years of service with the former employer can be included in the total number of years for purposes of calculating the eligible amount of the retiring allowance.

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