28 January 1997 External T.I. 9700995 - AMALGAMATION, 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:

Will ammalgamated XXXXXXXXXX be considered an affiliated employer for retiring allowance purposes?

Position: Yes

Reasons:

A review of the amalgamation documents did not warrant a deviation from our regular position regarding corporate amalgamations.

		970099
XXXXXXXXXX			M.P. Sarazin

Attention: XXXXXXXXXX

January 28, 1997

Dear Sirs:

Re: Sick Leave Credits Qualifying as a Retiring Allowance

This is in reply to your letter, forwarded to us by XXXXXXXXXX, dated January 10, 1997, wherein you requested our views as to whether the pay-out of accumulated sick leave benefits as a result of the recent amalgamation of XXXXXXXXXX would qualify as a retiring allowance for purposes of the Income Tax Act (the "Act").

Comments

In your letter you have outlined a series of transactions that are substantially completed. The review of such transactions generally falls within the responsibility of Tax Services Offices. However, the XXXXXXXXXX Tax Services Office has requested that we review the documents submitted with your letter and provide our comments with respect to the pay-out of accumulated sick leave benefits.

A payment in recognition of long service or in respect of loss of an office or employment relating to unused sick leave credits qualifies as a retiring allowance for purpose of the Act when the payment is made on termination of employment. This position is expressed in paragraph 5 of Interpretation Bulletin IT-337R2 and it was also stated in the letter dated October 8, 1993 from the XXXXXXXXXX Tax Services Office to XXXXXXXXXX which you enclosed with your submission.

To be a retiring allowance, the payment must be received upon or after retirement or be paid in respect of a loss of office or employment. The Department has stated in subparagraph 4(b) of IT-337R2 that retirement or loss of office does not include termination of employment with an employer followed shortly by employment with an affiliate of the former employer. In the case of corporate amalgamations, the courts have generally ruled that an amalgamation is a continuation of the two predecessor corporations and, as a consequence thereof, we have taken the position that the amalgamated corporation would be an affiliate of each of the predecessor corporations. Therefore, where an employee of the predecessor corporation is employed by the amalgamated corporation, no payment made by the predecessor corporation to the particular employee will qualify as a retiring allowance.

XXXXXXXXXX

It would appear that the amalgamation is, in fact, a continuation of XXXXXXXXXX The terms of the Amalgamation Agreement do not provide any justification for treating this amalgamation differently from a corporate amalgamation. Consequently, we are of the view that XXXXXXXXXX the members of the latter have not suffered a loss of office or employment. Therefore, the payment at this time of the accumulated sick leave benefits would not qualify as a retiring allowance for purposes of the Act.

We trust 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