27 February 1997 External T.I. 9704645 - 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:

Whether former employers are persons related to the current employer if the former employers and the current employer participate in the same pension plan.

Position:

If any part of the individual's service with a former employer is recognized under the current employer's pension plan, then the former employer and the current employer are "related" pursuant to paragraph 60(j.1)(v).

Reasons:

Wording of paragraph 60(j.1)(v) and previous opinions (950887, 960621, 961502)

                                                                  5-970464
XXXXXXXXXX                                                              J. Leigh

February 27, 1997

Dear Sir:

Re: Retiring Allowance

This is in reply to your facsimile of February 19, 1997 in which you requested our views on whether years of service with your previous employers which participate in the same pension plan as your current employer can be included in the total number of years used in determining the eligible portion of a retiring allowance that may be transferred to a registered retirement savings plan ("RRSP").

Written confirmation of the tax implications of proposed transactions can only be provided by this Directorate where the transactions are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3. Although we cannot provide a specific answer to your query, we offer the following general comments which are not binding on the Department.

Paragraph 60(j.1) of the Income Tax Act (the "Act") provides a deduction for the transfer of a retiring allowance to an individual's RRSP. The deduction is limited to the maximum amount described in subparagraph 60(j.1)(ii) of the Act. In general terms, the maximum amount is $2,000 times the number of years before 1996 during which the individual was employed by the employer or a person related to the employer, plus $1,500 times the number of years before 1989 in respect of which employer contributions under a pension plan or deferred profit sharing plan of the employer or a person related to the employer had not vested in the individual at the time the retiring allowance was paid.

It is a question of fact whether a person is related to an employer as required by subparagraph 60(j.1)(ii) of the Act. There are, however, provisions in the Act, such as section 251 and subparagraphs 60(j.1)(iv) and (v) of the Act, which define certain relationships as satisfying the test for purposes of the paragraph 60(j.1) deduction. With specific reference to subparagraph 60(j.1)(v) of the Act, where the individual receiving the retiring allowance was previously employed by another employer, the individual's service with the previous employer may be included in the total number of years that may be used for purposes of subparagraph 60(j.i)(ii) of the Act if any part of the individual's service with the previous employer is recognized to determine the individual's pension benefits upon retirement. Accordingly, if you will be receiving one pension out of your current employer's pension plan based on any part of the years of service rendered to each of the employers listed in your letter, then all the years of service rendered to those employers can be counted towards the maximum amount of the retiring allowance that will be eligible for the deduction under paragraph 60(j.1) of the Act.

We note that the Department's position as described above is reflected in the Income Tax Technical News No. 7 dated February 21, 1996, a copy of which is enclosed for your information.

We trust that these comments will be of assistance.

Yours truly,

Chief
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

??