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 employee has lost employment when he obtains new employment during lay-off notice period.
Position:
There is no loss of employment if new employment is with an affiliate of former employer.
Reasons:
Where former and new employer are related, associated or otherwise do not deal at arm's length, it is the Department's general position that no loss of employment has occurred where the new employment is arranged on or before the termination of the former employment. (If retiring allowance treatment is denied, the amount paid will be considered salary, wages or other remuneration and included in income under 5(1) or 6(3).)
XXXXXXXXXX 971211
May 30, 1997
Dear XXXXXXXXXX:
Re: Retiring Allowance
This is in reply to your letter of May 1, 1997, in which you ask whether you are entitled to a deduction under paragraph 60(j.1) of the Income Tax Act (the "Act") with respect to a transfer to your registered retirement savings fund of an amount received from your former employer.
XXXXXXXXXX
Since the amount in question has not yet been paid we are unable to confirm the tax consequences except in the context of an advance ruling request. The following therefore are general comments which do not bind the Department.
Your query relates to the definition of "retiring allowance" in subsection 248(1) of the Act and the Department's position as contained in paragraph 4(b) of Interpretation Bulletin IT-337R2 (the "I.T."). In order for an amount to be considered a "retiring allowance" after a lay-off it must be received "in respect of a loss of an office or employment". In interpreting this phrase, the Department makes the following statement in the I.T.:
Retirement or loss of employment does not include ... (b) termination of employment (other than mandatory retirement) with an employer followed shortly by employment with an affiliate of the former employer.
This position was recently clarified in Technical News No. 7 (please refer to page 5 of the enclosed copy) as follows:
... the intention (is) to deny retiring allowance treatment of payments made by the employer where arrangements have been made for the individual to obtain employment with an affiliate. If there is no assurance or offer of a new employment with an affiliate at the time the individual ceases the employment, then we will consider a loss of employment ... to have occurred.
With respect to your situation, if XXXXXXXXXX are affiliates, then it is our view that a loss of employment will not have occurred with respect to the first employment but rather that your employment is continuing.
(Note that the terms "foreign affiliate" and "controlled foreign affiliate" are defined in subsection 95(1) of the Act and that proposed amendments to the Act will add definitions of "affiliate" (subsection 206(1)), "affiliated persons" and "affiliated group of persons" (subsections 251.1(1) and (3), respectively). These definitions exist or are being introduced for specific purposes of the Act but not for the purpose of any provision relating to retiring allowances.)
With respect to our position in the I.T. an affiliate of the former employer includes a person that is "related" to, or "associated" with, the former employer as those words are defined in, respectively, section 251 and 256 of the Act. For example, if both XXXXXXXXXX are controlled by Her Majesty in Right of Canada, they are related. Control arises from the ability to elect or appoint a majority of the board of directors.
On the other hand, if XXXXXXXXXX are not related and generally deal at arm's length in respect of any transactions in which they have a mutual interest, then they are not affiliates. An offer of a new employment by XXXXXXXXXX will not cause us to view the employment with XXXXXXXXXX as continuing. In these circumstances, the amount of the retiring allowance which you may transfer on a tax-free basis to a registered retirement savings plan is equal to $2000 times the number of years during which you were employed by XXXXXXXXXX prior to 1996.
Although the foregoing comments are general in nature, we trust that they will assist you and your employer in determining whether the amount you receive from XXXXXXXXXX will be considered by the Department to be a "retiring allowance". For more information concerning dealing at arm's length and related persons please refer to the enclosed copy of Interpretation Bulletin IT-419R.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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