12 May 1997 External T.I. 9711165 - R/A, EMPLOYER SOLD, REHIRED BY NEW SUB

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:

Can an employee receive a retiring allowance from a subsidiary that has been sold where the employee will be hired by a newly incorporated subsidiary immediately after the sale?

Position:

No

Reasons:

Former employer and new subsidiary would be considered affiliates. Department gives widest possible meaning to the term "affiliate".

                                             		971116
XXXXXXXXXX		                                   M.P. Sarazin

Attention: XXXXXXXXXX

May 12, 1997

Dear Sirs:

Re: Retiring Allowance and Sale of Corporation

This is in reply to your letter dated April 24, 1997, wherein you requested our views as to whether an employee can receive a retiring allowance from a corporation in the situation where the corporation's parent company has agreed to sell the corporation to an arm's length party and the employee will be hired by a new corporation that will be incorporated by the parent corporation.

Comments

It appears that the interpretation you seek relates to proposed transactions to be undertaken by a specific taxpayer and, therefore, we bring to your attention Information Circular 70-6R3 dated December 30, 1996. Confirmation of tax consequences with respect to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. If you wish to obtain an advance income tax ruling with respect to specific transactions which are contemplated, a written request for an advance income tax ruling can be submitted in accordance with the Information Circular. Nevertheless, we can provide you with the following comments.

The determination of whether there is a loss of employment and whether a payment would qualify as a retiring allowance is a question of fact which can only be determined after a review of all of the relevant facts.

Retiring allowance is defined in subsection 248(1) of the Income Tax Act to mean an amount (other than a superannuation or pension benefit, an amount received as a consequence of the death of an employee and a benefit in respect of counselling services for the re-employment or retirement of the employee) received upon or after retirement from an office or employment in recognition of one's service or in respect of a loss of office or employment.

Where the parent of a wholly-owned subsidiary has promised employment to an employee of the subsidiary after its sale, we are of the view that the employee has not retired or lost an office or employment. This would be our position whether the promised employment is with the parent or another subsidiary to be incorporated in the near future.

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