4 June 1997 External T.I. 9712595 - SICK LEAVE CREDITS AS 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:

If a plan provides leave credits in substitution for vacation leave credits and sick leave credits, can all or a portion of any amount paid in respect of the credits be treated as a retiring allowance?

Position:

In general, if credits are earned as remuneration and can be received by an employee whether or not the employee retires or looses employment, no portion of the amount may be treated as a retiring allowance.

REASON:

If payments are not paid as a consequence of the loss of employment or retirement, they can not be treated as retiring allowances even if they become payable at retirement.

XXXXXXXXXX 971259

Attention: XXXXXXXXXX
June 4, 1997

Dear Sirs:

Re: Retiring Allowances

This is in reply to your letter of April 28, 1997, addressed to our XXXXXXXXXX Tax services Office and referred to our office for reply.

In your letter you requested a ruling on the treatment of certain amounts as retiring allowances where the amounts are paid in accordance with XXXXXXXXXX paid leave policy. This Directorate can provide advance income tax rulings to confirm the tax implications inherent in particular transactions but can only provide these when the transactions are proposed and are the subject matter of a request submitted in the manner set out in Information Circular 70-6R3, dated December 30, 1996. Accordingly, we can not at this time provide any rulings in respect of the specific situation detailed in your letter. On the other hand, we can provide the following general replies to your questions which may be of assistance to you.

Paragraph 5 of the Department's interpretation Bulletin IT-337R2 Retiring Allowances provides as follows:

"5. To qualify as a retiring allowance a payment must be in recognition of long service or in respect of loss of an office or employment. The term "long service" is usually considered to have reference to the total number of years in an employee's career with a particular employer or with affiliated employers. A payment in respect of unused sick leave credits qualifies as a retiring allowance. On the other hand, when an employee terminates employment and a payment is made in respect of accumulated vacation leave not taken prior to retirement, this payment is considered to be ordinary remuneration and included in the employee's income in the year of receipt pursuant to subsection 6(3) (of the Income Tax Act (the "Act"))."

It seems to us that where sick leave credits have been converted to a type of leave credit allowing other options, payment of the credits would not qualify as a retiring allowance.

The provisions of paragraph 60(j.1) of the Act do not require retiring allowances to be transferred directly to an employee's RRSP by the employer. Accordingly, if an employee is paid a retiring allowance that is incorrectly reported as employment income, the employee may still contribute the amount to an RRSP and claim the deduction from income. In such circumstances, however, an amended T4 should be submitted to correct the error.

In this respect it should also be noted, that the provisions of paragraph 60(j.1) of the Act only apply if the payment to the RRSP is made in the year the retiring allowance is received or within 60 days after the end of the year in which it is received. If it is determined that an error occurred and a correction can not be made within this time period you should contact your local tax services office to determine what relief, if any, can be provided.

We trust these comments will be of assistance.

Yours truly

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch