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:
Are the components of an award retiring allowances.
Position:
Yes.
Reasons:
General application of Department positions.
XXXXXXXXXX 5-961496
May 22, 1996
Dear XXXXXXXXXX:
Re: Transfer of Retiring Allowances to RRSPs
This is in reply to your of April 25, 1996 wherein you requested clarification of the amounts you may transfer to an RRSP in accordance with subsection 60(j.1) of the Income Tax Act (the "Act").
From the information you provided, it is clear that your letter pertains to an existing factual situation. However it is not clear whether or not the amounts in question have already been paid to you.
Written confirmation of the tax implications inherent in particular transactions can be given by this Directorate where the transactions are proposed and they are the subject matter of an advance ruling request submitted in the manner set out in the enclosed Information Circular 70-6R2. Accordingly, if the amounts have not been paid to you yet we can not provide you with a binding written confirmation of the tax implications unless you request it in proper form.
On the other hand, if the amounts have already been paid to you, discussions on their assessment can only be considered through your local district Tax Services Office.
Given the above, we can not provide any comments that relate specifically to your case at this time. However, we can provide you with the following general comments which you may find of assistance.
1. Damages for wrongful dismissal
Damages awarded for wrongful dismissal are treated as retiring allowances under the Act. However, retiring allowances do not include interest awarded in respect of the award, any unpaid employment income or any amount awarded in respect of expenses incurred to obtain the retiring allowance. Retiring allowances may be transferred to an RRSP within the limits set under paragraph (60(j.1) of the Act.
2. Gratuity or Pension Payments.
An amount paid out of an unregistered pension is not a retiring allowance.
A payment under an unregistered pension plan which is part of a series of payments to be paid for life and which is calculated as 2% of an employee's final salary times the employee's years of service would generally be treated as a payment from a pension or, if the obligation was funded by the employer, a payment from an Retirement Compensation Arrangement (an "RCA"). In either case the amount must be reported as pension or RCA income and not as a retiring allowance when it is received by the employee. Amounts paid out of such arrangements can not be transferred to an RRSP unless the amount is paid in respect of services rendered while the employee was not resident in Canada and the amount is paid in a lump sum. Further information on this can be obtained at your local Tax Services Office.
3. Vacation Pay.
Vacation pay is considered to be a payment of employment income where it is paid under the terms of an employment contract. It can not be transferred to an RRSP using subsection 60(j.1) of the Act.
4. Expenses to Obtain Retiring Allowances
Amounts received as awards or reimbursements of legal fees paid to collect or establish a retiring allowance or pension benefit must be included in income under paragraph 56(1)(l.1) of the Act. However, these expenses may also be fully or partially deductible in computing income in accordance with paragraph 60(o.1) of the Act. The extent of the deduction available may be discussed with the local Tax Services Office.
5. Interest.
Interest awards in respect of the settlement of employment contracts are included in income as income from employment where they are computed with respect to amounts of unpaid remuneration and are in respect of periods prior to the rendering of the judgement. Interest earned after the date of judgement must be included in income as ordinary interest.
It is the Department's current view that interest payable in respect of an award for damages for a period of time up to the date of judgement is a non-taxable amount. Any interest awarded with respect to a period after that date of judgement is taxable as interest income. Any interest paid on any other form of unpaid retiring allowance such as a cash settlement for unused sick leave, will also be taxable as interest but from the date it was first payable. No amount of interest may be transferred to an RRSP under paragraph 60(j.1) of the Act.
We trust this information 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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© Her Majesty the Queen in Right of Canada, 1996
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