14 March 1996 External T.I. 9605605 - RETIRING ALLOWANCE RE-EMPLOYMENT

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:

Rollover of retiring allowance to RRSP

Position:

I gave her our general position with respect to going back to work, contractor, etc.

Reasons:

Established positions

			5-960560
XXXXXXXXXX		Franklyn S. Gillman

March 14, 1996

Dear XXXXXXXXXX:

Re: Retiring Allowance

This is in reply to your letter dated January 19, 1996 wherein you requested a technical interpretation regarding the transfer of a retiring allowance to an RRSP and subsequent employment.

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.

Retiring allowance is defined in subsection 248(1) of the Income Tax Act (the "Act") to mean an amount (other than a superannuation or pension benefit, and, after November 12, 1981, an amount received as a consequence of the death of an employee) received upon or after retirement from an office or employment in recognition of one's service or in respect of a loss of office or employment. However, as noted in paragraph 4 of Interpretation Bulletin IT-337R2 (copy enclosed) retirement or loss of employment by an individual does not include inter alia, termination of employment (other than mandatory retirement) with an employer followed shortly by employment with an affiliate of the former employer. For the purpose 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.

Where, in an arm's length situation, an employee has retired without any assurance at the time of retirement of being hired by an affiliate, or being rehired by his former employer, and receives from the former employer a payment based on long service, it is the Department's position that this payment will qualify as a retiring allowance notwithstanding that the individual might be hired by the affiliate, or rehired by the former employer, at a later time when circumstances have changed. This position would not apply, however, where such non-assurance exists at the time of agreeing to terminate his employment but not on the last day of employment; i.e., between the time of the agreement and the last day of employment arrangements are made for the employee to be rehired or to take up employment with an affiliate.

We trust that the above comments will be of assistance to you.

Yours truly,

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

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