22 August 1996 External T.I. 9625135 - 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:

General discussion on retiring allowance

Position:

Established positions

Reasons:

									5-962513
XXXXXXXXXX							Franklyn S. Gillman

August 22, 1996

Dear XXXXXXXXXX:

Re: Retiring Allowance

Your letter dated June 12, 1996 addressed to our Calgary Tax Services Office was forwarded to us for our consideration and reply. In your above mentioned letter you requested that we comment on a $XXXXXXXXXX allowance you received from your employer upon your early resignation from XXXXXXXXXX. Your letter did not contain sufficient information regarding your specific situation for the Department to comment on the allowance and what options are available to you regarding the allowance. However, we are prepared to provide you with the following general comments which are a reflection of the Department's current position of retiring allowances as discussed in Interpretation Bulletin IT-337R2 entitled Retiring Allowances, a copy of which we are enclosing for your perusal.

Retiring allowance is defined in subsection 248(1) of the Income Tax Act (the "Act") to mean an amount (other than a superannuation or pension benefit, and, after November 12, 1981, an amount received as a consequence of the death of an employee) received upon or after retirement from an office or employment in recognition of one's service or in respect of a loss of office or employment. However, as noted in paragraph 4 of Interpretation Bulletin IT-337R2, retirement or loss of employment by an individual does not include, transfer from one office or position to another with the same employer.

It is our opinion that retirement or loss of employment will not occur where the individual is rehired by the former employer shortly after leaving his employment whether on a full or part time basis. This may also be the case depending on the contractual arrangements, where the individual is engaged shortly after leaving employment to perform services for his former employer as an independent contractor.

Where, in an arm's length situation, an employee has retired (or been terminated) without any assurance at the time of retirement (or termination) of being rehired by the former employer, and receives from the former employer a payment based on long service (or for loss of employment or office), it is the Department's position that the payment will qualify as a retiring allowance notwithstanding that the parties have an understanding that the individual might be rehired by the former employer at a later time when circumstances have changed. Such a payment will not be considered a retiring allowance, however, where, between the date of the notice of retirement or of termination and the last day of employment, arrangements are made for the employee to be rehired. Our comments concerning independent contracting in the previous paragraph apply equally in these circumstances.

A retiring allowance is an income inclusion for income tax purposes in the year of receipt pursuant to subparagraph 56(1)(a)(ii) of the Act. However, within certain limits it may be transferred to ones registered retirement savings plan ("RRSP") and accordingly, deducted in computing ones income for a taxation year in accordance with paragraph 60(j.1) of the Act.

Clause 60(j.1)(ii)(A) of the Act limits the transfer to an RRSP to $2,000 for each calendar year before 1996 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 of those calendar years 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.

It is the Department's position that the number of years during which one is employed for purposes of subparagraph 60(j.1)(ii) of the Act includes a part of a year as one year. (See paragraph 13(a) of Interpretation Bulletin IT-337R2.)

Should you have any further queries regarding this matter would you please direct them to the Calgary, Tax Services Office, and may we suggest that you include copies of all written documents (if any) pertaining to your early resignation, the allowance XXXXXXXXXX so that an analysis of the situation may be effected.

We trust that 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

Enclosures

cc. T. Janzen

Employer Inquiries Section
w/s 471 room 232
Calgary Tax Services Office
Calgary, Alberta