23 January 1997 External T.I. 9701205 - 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: Retiring allowance

Position: Routine

Reasons: Routine

XXXXXXXXXX 970120

Attention: XXXXXXXXXX

January 23, 1997

Dear Sirs:

Re: Retiring Allowances

This is in reply to your letter of January 15, 1997 in which you requested our clarification of certain issues related to the payment of retiring allowances.

Issue 1

Must the payment of a retiring allowance to a former employee be a lump sum payment or can it be paid in multiple instalments over a period of time.

Our Comments

A retiring allowance may be paid in the form of a single payment or as a series of payments over time. If the retiring allowance is paid in instalments over a number of years, the recipient is not prohibited from designating an amount under paragraph 60(j.1) of the Income Tax Act (the "Act") in any or all of the years the instalments are included in income provided the total amount designated does not exceed the amount that may be transferred to an RRSP under that provision.

Issue 2

Will an amount paid in accordance with the employer's regular payroll system be a retiring allowance if the employee is no longer actively working for the employer.

Our Comments

The determination of whether a payment or series of payments would qualify as a retiring allowance is a question of fact. In the situation where every significant aspect of employment ends on a specific day and every significant benefit ends on that day, we are of the opinion that a payment or series of payments can reasonably be regarded as an amount received "...in respect of loss of office or employment". We have also previously determined that severance pay as defined under section 58 of the Ontario Employment Standards Act is a retiring allowance. However, please note that a payment in lieu of a required notice of termination is not considered to be a retiring allowance.

Issue 3

Will a lump sum payment be a retiring allowance if the employer continues some of the employee's employment benefits for some period of time after the cessation of their employment.

Our Comments

No general reply can be made to this question. As noted in our reply to 2. above, it is a question of fact whether employment has terminated at any particular time or if the continuation of benefits is indicative of continued employment.

Issue 4

Does it make any difference to the characterization of the payments as retiring allowance if the employer merely leaves the employee on the regular payroll system for a period of time following the cessation of employment despite the fact that the individual does not attend at the employer's premises nor perform any services for the employer following the termination date.

Our Comments

We are not certain of the distinction between your first concern and this concern. However, our general comments in 2 above will still have application. If it is found that the employee has in fact terminated employment, amounts otherwise characterized as retiring allowance payments will not loose that characterization if those amounts are paid through the normal payroll system.

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