29 July 1997 External T.I. 9718455 - RETIRING ALLOWANCE ON RETIREMENT OF AN OFFICER

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 a retiring allowance be paid to an officer of a corporation several years after the employers active business is terminated.
				If so, what would be a reasonable payment?

Position:

Yes an amount can be paid. The amount that is reasonable is a question of fact.

Reasons:

We have frequently stated that an officer of a corporation must resign before the officer may be paid a retiring allowance, even when an active business is sold. It should follow that the officer may then receive a retiring allowance at the subsequent date of resignation.
			The amount that may be reasonable should only be determined after the specific situation is reviewed.

XXXXXXXXXX 971845

Attention: XXXXXXXXXX

July 29, 1997

Dear Sirs:

Re: Payment of Retiring Allowance

This is in reply to your letter of July 2, 1997, in which you asked for our opinion with respect to the payment of a retiring allowance to an officer of a corporation where the corporation has not operated an active business for a number of years.

The situation described in your letter appears to be a factual situation. Written confirmations of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3, dated December 30, 1996. Accordingly, we can not specifically address the situation detailed in your letter. However we can provide the following general comments which may be of assistance to you.

In calculating the amount that may be deducted under the provisions of paragraph 60(j.1) of the Act, a taxpayer may count all years of employment with an employer or a related employer including those years during which the taxpayer was employed solely as an officer of the employer. This would generally include years when the employer did not operate an active business.

It may be possible to pay a retiring allowance to an officer after a period when no remuneration or dividends have been paid to the taxpayer for a number of years. However, the amount the Department will accept as reasonable in respect of those years or the preceding years of active employment, may only be determined after a detailed review of all of the factors related to a particular situation.

We trust these comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate