28 January 1997 External T.I. 9637715 - RETIRING ALLOWANCE AFFILIATE SCHOOL BOARDS

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 school boards in the Province of Ontario are considered to be affiliated for purposes of paying a retiring allowance.

Position:

School boards in the Province of Ontario are not affiliated.

Reasons:

Each school board in Ontario are autonomous bodies, separate and distinct from one another. The definition of "persons related to the employer" at 60(j.1)(iv) should not be used when determining whether a payment is a retiring allowance or not.

							5-963771
XXXXXXXXXX						Franklyn S. Gillman

Attention: XXXXXXXXXX

January 28, 1997

Dear Sirs:

Re: Retiring Allowance

This is in reply to your letter of November 13, 1996, in which you ask whether another school board would be considered to be an affiliate of XXXXXXXXXX in a situation where an employee who receives a severance payment upon leaving your employ and is hired by another school board may consider the severance payment to be a retiring allowance pursuant to the definition of that phrase at subsection 248(1) of the Income Tax Act (the "Act").

Written confirmation of the tax implications inherent in particular proposed transactions are given by this Directorate only where the transactions are outlined in an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R3. Questions concerning actual fact situations should otherwise be directed to your tax services office. Although we cannot provide a specific answer to your query, we offer the following general comments which are not binding on the Department.

Paragraph 4(b) of Interpretation Bulletin IT-337R2 reads as follows:

4. Retirement or loss of employment does not include: ... (b) termination of employment (other than mandatory retirement) with an employer followed shortly by employment with an affiliate of the former employer.

Where the retirement is voluntary and occurs after long service or where the employer terminates the office or employment, and at the time of retirement or termination arrangements have been made for the individual to become an officer or employee with an affiliate of the former employer, the Department will not consider the individual to have retired or lost an office or employment. This being the case, any payment received by the employee upon termination of employment would not be considered a retiring allowance pursuant to the definition of that term at subsection 248(1) of the Act.

For the purpose of determining whether an individual has retired from an office or employment as contemplated by IT-337R2, the word "affiliate" is intended to be given its broadest meaning and would include any related person (within the meaning of section 251 of the Act) or any associated company, or any company that is a member of a group of companies that do not deal at arm's length notwithstanding that they may not be related or associated for any purpose of the Act.

It should be noted however that the definition of "person related to the employer" contained in paragraphs 60(j.1)(iv) and (v) of the Act should not be used in determining whether a person would be an affiliate of another for purposes of determining whether a payment is a retiring allowance in accordance with the definition of that term contained at subsection 248(1) of the Act.

It is our understanding that the various school boards are autonomous bodies unto themselves in that there is a separate one in each Ward which stand alone, separate and apart from each other. Each school board is made up of elected officials and it is the trustee of each one who decides on that board's operations. Each school board negotiates its own collective agreement (separate and apart from the other boards) with the various unions its employees are associated with, where the number of employees, their salaries, benefits, etc. are fixed and defined. The only common thread which exists amongst the school boards in Ontario is that the teaching staff all belong to the same provincial pension plan and the business staff all belong to the Ontario Municipal Employees' Retirement System. Based on the above, it is our opinion that the school boards in the Province of Ontario are not affiliated.

Accordingly in a situation where an employee is terminating employment with one school board in the Province of Ontario in order to take a position with another school board, it is our opinion that the employee would be able to receive a retiring allowance from the past employer.

We trust these comments will be of assistance.

Yours truly,

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