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:
As a result of a sale of assets (XXXXXXXXXX) by his former employer, an individual and the former employer have recently agreed that the former employer will pay him three instalments in respect of the cancellation. The issue is whether the instalments can be treated as a retiring allowance as defined in subsection 248(1) of the Income Tax Act.
Position:
If the instalments will be received by the individual in respect of the loss of his employment, the instalments can be viewed as being a retiring allowance.
Reasons:
The instalments would be described within the definition of retiring allowance (Also, see paragraph 7 of IT-337R2).
970966
XXXXXXXXXX M. Eisner
May 21, 1997
Dear Sirs:
Re: Retiring Allowances - Periodic Payments
This is in reply to your letter of April 9, 1997 in which you asked for our comments on an arrangement (in final settlement with respect to your previous employment position with XXXXXXXXXX) to make three payments over a period of four months.
You enclosed a settlement letter XXXXXXXXXX to your legal representative. The settlement deals with the cancellation of your medical and dental benefits on XXXXXXXXXX, as a result of a sale of assets by XXXXXXXXXX. With respect to the settlement, XXXXXXXXXX proposed to pay three equal instalments to you at two month intervals commencing XXXXXXXXXX. Further, the gross amount of each instalment of $XXXXXXXXXX was to be subject to withholding taxes at the rate of 10% and was to be treated for income tax purposes as being a "retiring allowance," as defined in subsection 248(1) of the Income Tax Act (the Act). Accordingly, the net amount you will receive in respect of each instalment will be $XXXXXXXXXX. The settlement has been structured in this manner as you wish to receive the net amount of about $XXXXXXXXXX.
The concern is whether the income tax treatment of the settlement described above is acceptable to this Department.
An amount received in respect of a loss of an office or employment, is included in the definition of retiring allowance in subsection 248(1) of the Act. On the basis that you were entitled to benefit from extended health benefits as a result of the loss of your office or employment, it is our view that the three payments of $XXXXXXXXXX constitute a retiring allowance. It is also our view that, pursuant to comments set out on page 54 (copy enclosed) of our publication "Employers Guide to Payroll Deductions - Basic Information", the rate of withholding (Ontario) in respect of each instalment would be 10%.
We trust our comments will be of assistance to you.
Yours truly,
John F. Oulton
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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