17 June 1996 Internal T.I. 9618707 - RET. ALLOW., SALARY CONTINUATION

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:

Whether salary continuation payments for a three month period would qualify as a retiring allowance?

Position:

Yes

Reasons:

Every significant aspect of employmnet ceased after termination so payments represent retiring allowance.

							June 17, 1996

KINGSTON TAX SERVICES OFFICE HEADQUARTERS
CPP/UI Rulings M.P. Sarazin
(613) 957-3499
Attention: Bill Depew 961870

Retiring Allowance

This is in reply to your Round Trip Memorandum dated May 22, 1996 wherein you requested our opinion as to whether certain salary continuation payments, described in a letter (the "Letter") you received from XXXXXXXXXX (the "Taxpayer"), would be considered a retiring allowance for purposes of the Income Tax Act (the "Act").

Comments

On XXXXXXXXXX the Taxpayer was notified of his indefinite lay-off from his employer effective XXXXXXXXXX The Taxpayer worked until XXXXXXXXXX at which time his employment was in fact terminated. The terms of the termination were as follows:

(a)the Taxpayer's participation in the employer's pension plan ceased XXXXXXXXXX The Taxpayer was entitled to the pension benefits provided under the terms of the pension plan;

(b)on or before XXXXXXXXXX the Taxpayer received all of his vacation pay accrued to XXXXXXXXXX

(c)the employer agreed to pay the Taxpayer's salary for a maximum of XXXXXXXXXX weeks; and

(d)the employer agreed to provide group medical, dental and vision care benefits until XXXXXXXXXX.

The Taxpayer has argued that the salary continuance represents a retiring allowance and Canada Pension Plan premiums should not be withheld from such payments.

The determination of whether a payment or series of payments would qualify as a retiring allowance is a question of fact. In the situation where every significant aspect of employment ends on a specific day and every significant benefit ends on that day, we are of the opinion that the payment or series of payments can reasonably be regarded as an amount received "...in respect of loss of office or employment". We have previously determined that severance pay as defined under section 58 of the Ontario Employment Standards Act is a retiring allowance.

Since the termination agreement specifically states that the termination date is XXXXXXXXXX and it would appear that all significant benefits ended on XXXXXXXXXX we would suggest that these payments could be treated as a retiring allowance. However, amounts paid in respect of vacation pay and pay in lieu of notice are not considered retiring allowances.

With regards to the withholding requirements, we would refer you to paragraph 14 of Interpretation Bulletin IT-337R2 wherein it states "..., a person paying a retiring allowance is required to report the amount paid on a form T4A supplementary and to withhold tax therefrom in such amount as is prescribed by Regulation."

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

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