29 February 1996 External T.I. 9607325 - TRANSFER OF RET ALL - ELIGIBLE AMOUNT

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.

		                      5-960732
XXXXXXXXXX                        M. Shea-DesRosiers

February 29, 1996

Dear Sir:

Re: Transfer of retiring allowance to a Registered Retiring Savings Plan ("RRSP")

This is in reply to your letter of February 5, 1996 addressed to the Ottawa Services Taxation Office which was forwarded to our Division for a reply.

Your question concerns the calculation of the eligible amount of a retiring allowance which will be received from your current employer and transferred to your RRSP and the deduction available under paragraph 60(j.1) of the Act.

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.

"Retiring allowance" is defined in subsection 248(1) of the Income Tax Act (the "Act") to mean an amount received by an individual on or after retirement from an office or employment in recognition of one's long service or in respect of a loss of office or employment.

The amount of the retiring allowance for which a deduction is available under paragraph 60(j.1) of the Act is equal to $2000 times the number of years of employment before 1996 with the employer paying the retiring allowance and with a former employer who is related to the payer. An additional $1500 per year for those years of employment before 1989 is available where employer contributions to a pension plan or deferred profit sharing plan had not vested in respect of those years at the time the retiring allowance is paid. As indicated in paragraph 13(a) of Interpretation Bulletin IT-337R2, part of a year counts as one year for the purpose of the above computations.

The phrase "employer related to the employer" means related in law or in fact. Subparagraph 60(j.1)(v) of the Act states that, for the purposes of this paragraph "person related to the employer" includes a previous employer of the retiree whose service therewith is recognized in determining the retiree's pension benefits. 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. Consequently, where an employee has not bought back the years of past service with an unrelated former employer, the former employer will not be an employer related to the employer and the years of past service with the former employer will not be included in the total number of years for the purpose of the calculation of the eligible amount of the retiring allowance.

Where an employee buys back past service years, it is the Department's position that "employer contributions" have vested in respect of each year bought back notwithstanding that the employee paid both his and the employer's required contributions. Consequently, with respect to a retiring allowance, an employee would not be eligible to transfer the additional $1,500 referred in Clause 60(j.1) (ii) (B) of the Act to his RRSP for any of the years of past service previously bought back which have vested. Consequently, the amount of a retiring allowance eligible for transfer to an RRSP under Clause 60(j.1)(ii)(A) of the Act would be limited to $2,000 for each of these years.

A retiring allowance is taxable in the year of receipt pursuant to subparagraph 56(1)(a)(ii) of the Act. If the terms of the employment contract or of a program to reduce employment give an employee the right to receive a retiring allowance in a lump sum at the time of retirement or termination or in instalments over a number of years and the employee chooses the instalment option at the time of retirement or at the time the employee agrees to voluntarily retire, the instalments are taxable in the year received. Furthermore, it is our view that it is not necessary that the instalments be equal in amount, but any option to select the amount of each instalment must be exercised at the time of retirement and be irrevocable.

The above comments do not constitute an advance income tax ruling and consequently they do not bind the Department. We trust, however, that they will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate

c.c. Nicole Côté

Ottawa Tax Services Office