23 April 1996 External T.I. 9610705 - AMALGAMATION, AFFILATE, RETIRING ALLOWANCE

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:

Where an employer corporation amalgamates with its parent, would the amalgamated corporation be considered an affiliate of the employer corporation for purposes of retiring allowance payment?

Position:

Yes

Reasons:

Courts have generally ruled that an amalgamation is a continuation of the two predecessor corporations therefore the employer corporation should not be entitled to pay its president a retiring allowance for services provided to employer corporation prior to the amalgamation.

                                     		  961070
XXXXXXXXXX	                             M.P. Sarazin

Attention: XXXXXXXXXX

April 23, 1996

Dear Sirs:

Re: Retiring Allowance

This is in reply to your letter dated March 18, 1996, wherein you requested our comments as to whether a certain payment made to a specific taxpayer would qualify as a retiring allowance within the meaning assigned by subsection 248(1) of the Income Tax Act (the "Act").

Comments

It appears that the interpretation you seek relates to a proposed transaction to be undertaken by specific taxpayers and, therefore, we bring to your attention Information Circular 70-6R2 dated September 28, 1990, and the Special Release thereto issued on September 30, 1992, issued by Revenue Canada, Customs, Excise and Taxation. Confirmation of tax consequences with respect to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. If you wish to obtain an advance income tax ruling with respect to specific transactions which are contemplated, a written request for an advance income tax ruling can be submitted in accordance with the Information Circular. Nevertheless, we can provide you with the following comments.

The determination of whether an individual has suffered a loss of office or employment or whether a payment would qualify as a retiring allowance is a question of fact. In paragraph 4 of IT-337R2, the Department has stated that loss of office or employment does not include termination of employment with an employer followed shortly by employment with an affiliate of the former employer. In a situation where a corporation (the "Employco") is amalgamated with its parent corporation, we would consider the amalgamated corporation to be an affiliate of the predecessor corporation, Employco, for the purposes of determining whether an individual has suffered a loss of employment or whether a payment would constitute a retiring allowance.

We trust 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