30 December 1996 Internal T.I. 9640907 - EMPL. STANDARD BRANCH 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:

Can a pmt made by employment standards branch be considered a retiring allowance?

Position:

Yes

Reasons:

The employment standards branch collects amount from the employer under the law and acts as agent for the employer.

				December 30, 1996

	PENTICTON TAX SERVICES OFFICE	HEADQUARTERS
	Problem Resolution Section	M.P. Sarazin
	Attention:  K. Zazzara	(613) 957-3499

			964090

Retiring Allowance Paid by Employment Standard Branch

This is in reply to your facsimile dated December 10, 1996, wherein you requested our comments as to whether amounts received by individuals from the Employment Standards Branch of British Columbia (the "Branch") would qualify as retiring allowances in the situation where the Branch collected the severance entitlements from the individuals' employer when the employer went into receivership and the individuals lost their jobs with the particular employer. In addition, you have asked whether the fact that there were no amounts withheld by the Branch with respect to the payments would jeopardize its classification as a retiring allowance.

Comments

A "retiring allowance" is defined in subsection 248(1) of the Income Tax Act (the "Act") and it includes an amount received in respect of a loss of office or employment. The Department's position with respect to payments, under a statutory requirement, received by a terminated employee is published in paragraph 4 of Interpretation Bulletin IT-196R2 ("Payments by Employer to Employee") and paragraph 15 of IT-365R2 ("Damages, Settlements and Similar Receipts). Generally, a payment made in lieu of earnings for the period for which reasonable notice is required by virtue of the terms of an employment contract or by statute, will be treated as employment income and not as a retiring allowance. The determination of whether a specific payment qualifies as a retiring allowance is a question of fact.

We have previously reviewed the definitions of "termination pay" and "severance pay" in the Ontario Employment Standards Act. We concluded that "severance pay" as provided for under that statute would be considered a retiring allowance while "termination pay" is not. Unfortunately, we have not done a comprehensive review of other provincial or federal employment standards legislation and, as such, we are not able to provide any further opinion as to whether your payments would be considered retiring allowances.

With regard to withholding requirements, we would refer you to paragraph 14 of 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." Where an amount would otherwise qualify as a retiring allowance, the fact that the payer did not withhold tax therefrom would not, in and by itself, result in the payment not qualifying as a retiring allowance.

In reviewing the aforementioned Ontario legislation we considered it reasonable to accept that the funds were being held by the Employment Standards Branch as an agent for the employer, and the same position may be applied for British Columbia. Consequently, a retiring allowance received by the employee from the Branch would qualify as an eligible retiring allowance for purposes of paragraph 60(j.1) of the Act.

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