19 June 1996 External T.I. 9606215 - RETIRING ALLOWANCE YEARS OF SERVICE

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:

Related employers for purposes of a retiring allowance and number of years eligible for purposes of calculating a retiring allowance.

Position:

General discussion with of a retiring allowance

Reasons:

Previous positions taken

					5-960621
XXXXXXXXXX				Franklyn S. Gillman

Attention: XXXXXXXXXX

June 19, 1996

Dear Sir/Madam:

Re: Retiring Allowance and Termination of Employment

This is in reply to your letter dated November 17, 1996 in which you requested our opinion on whether years of service with another employer which participates in the local authorities pension plan can be considered for purposes of calculating the number of years when determining the eligible portion of a retiring allowance transferred to a registered retirement savings plan ("RRSP").

As was explained during the telephone conversation (XXXXXXXXXX/Gillman) of March 13, 1996, 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 submitted in the manner set out in Information Circular 70-6R2, dated September 28, 1990. Where the particular transactions are completed, the enquiry should be addressed to the relevant tax services office. However, we offer you the following general comments which may be of assistance to you.

It is a question of fact whether a person is related to an employer as required by subparagraph 60(j.1)(ii) of the Income Tax Act (the "Act"). There are, however, provisions in the Act, such as section 251 and subparagraphs 60(j.1)(iv) and (v), which define certain relationships as satisfying the test for purposes of the 60(j.1) deduction. With specific reference to subparagraph 60(j.1)(v) of the Act, where the individual receiving the retiring allowance was previously employed by another employer who is not related to the individual's present employer, the individual's service with the previous employer may be added to the years of service with the present employer in order to arrive at the total number of years that may be used for purposes of subparagraph 60(j.1)(ii) of the Act provided that any part of the individual's service with the previous employer is recognized to determine the individual's pension benefits upon retirement. In other words, if the individual will be receiving one pension out of the current employer's pension plan based on a part or all the years of service rendered to the previous employer, then all those years of service rendered to the previous employer may be counted towards determining the maximum amount of the retiring allowance that will be eligible for the deduction under paragraph 60(j.1) of the Act.

With regards to your query of ascertaining the number of years that are eligible in calculating the amount that qualifies for transferring a retiring allowance to one's RRSP in respect of employment, when one has already received a retiring allowance in the past from a related employer, the following applies. Clause 60(j.1)(ii)(A) of the Act limits the transfer to $2,000 for each calendar year during which an employee was employed by an employer or by a related employer and clause 60(j.1)(ii)(B) of the Act permits an additional $1500 transfer for each calendar year before 1989 the employee was not a member of a pension plan or a deferred profit sharing plan in which contributions by the employer or a person related to the employer had vested in the employee. Clauses 60(j.1)(ii)(C) and (C.1) of the Act then apply to limit the deduction available to the employee/retiree by reducing the aggregate amount determined under the paragraph by all amounts deducted by the paragraph that were paid by the employer or a person related to the employer before the year and in the same year, respectively.

It is the Department's position that the number of years during which one is employed includes a part of a year as one year. (See paragraph 13(a) of Interpretation Bulletin IT-337R2 entitled "Retiring Allowances".)

Although the foregoing comments are not binding on the Department, we trust they are helpful. If you have any questions do not hesitate to contact us.

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