22 January 1997 External T.I. 9641505 - RELATED EMPLOYERS FOR 60(J.1)

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 previous employer related to current employer.

Position:

General position.

Reasons:

"Related persons" under 251(2) and 60(j.1)(iv).

XXXXXXXXXX 964150

Attention: XXXXXXXXXX

January 22, 1997

Re: Paragraph 60(j.1) of the Income Tax Act (the "Act")

This is in reply to your letter of December 10, 1996, in which you ask us to confirm the number of years of employment which may be used in the calculation under the above-noted provision. Your question relates to a specific employee and his current and predecessor employers.

We are unable to provide an opinion which binds the Department except in the context of an advance income tax ruling. We can provide, however, the following general comments.

Subparagraph 60(j.1)(ii) of the Act provides that the amount of a retiring allowance eligible for a deduction upon a transfer to a registered retirement savings plan is calculated by reference to the number of years of employment with the current employer and with "a person related to the employer".

In accordance with paragraph 251(2)(b) of the Act a corporation and the person controlling the corporation are related for purposes of the Act. Therefore, if one of the employers acquires control of the other employer and they are "related" either at the time the employee leaves the former employer and commences employment with the current employer, or at the time the current employer pays the retiring allowance, all the years of employment with both employers may be counted in the calculations under subpararaph 60(j.1)(ii) of the Act. Please refer to the enclosed Interpretation Bulletin IT-419R, paragraphs 10 through 12, for more information about corporations and related persons.

The current and predecessor employers may also be related by virtue of subparagraph 60(j.1)(iv) of the Act if the current employer has acquired or continued the business of the predecessor employer. Thus, if the current employer purchases the business assets of the former employer, all the years of employment with both the current and former employer may be included for purposes of the calculation in subparagraph 60(j.1)(ii) of the Act. Please note that it is only necessary for the current employer to acquire or continue "a" business; if the predecessor carried on more than one business, only one of the businesses need be acquired or continued. Please refer to the enclosed Interpretation Bulletin IT-206R for assistance in determining whether the former employer carried on more than one business. Furthermore, the business need only be acquired and it is irrelevant that the current employer no longer operates the business at the time the retiring allowance is to be paid.

Finally, we confirm that it is necessary to satisfy the conditions in only one of paragraphs 251(2)(b) or 60(j.1)(iv) in order for the two employers to be considered "related" at law for purposes of paragraph 60(j.1) of the Act.

We trust our 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