19 November 1997 External T.I. 9724675 - RETIRING ALLOWANCE CONTINUED EMPLOYMENT WITH AFFILIATE

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 retiring allowance may be paid where an employee leaves employment with a community college to accept a position with a university.

Position:

There is no loss of employment if the employers are affiliated However this is a question of fact.

Reasons:

Where former and new employers are related, associated or otherwise do not deal at arm's length (affiliated), it is the Department's general position that no loss of employment occurs where the new employment is arranged on or before the termination of the former employment.

972467
XXXXXXXXXX W.C. Harding

Attention: XXXXXXXXXX

November 19, 1997

Dear Sirs:

Re: Payment of Retiring Allowances

This is in reply to your letter of September 15, 1997, in which you ask whether two employers, a community college and a Canadian University, would be affiliated in a situation where an employee will terminate employment with one employer in order to accept employment with the other.

Written confirmation of the tax implications inherent in particular proposed transactions are given by this Directorate only where the transactions are outlined in an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R3. Questions concerning actual fact situations should otherwise be directed to your local tax services office. Accordingly, since your situation appears to deal with a factual situation, we cannot provide a specific answer to your query at this time. However, we can provide the following general comments which are not binding on the Department but may be of assistance.

Paragraph 4(b) of Interpretation Bulletin IT-337R2 reads as follows:

"4.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."

Where a retirement occurs after long service or where the employer terminates the office or employment, and at the time of retirement or termination arrangements have been made for the individual to become an officer or employee with an affiliate of the former employer, the Department will not consider the individual to have retired or lost an office or employment. This being the case, any payment received by the employee upon termination of employment would not be considered to be a retiring allowance as defined in subsection 248(1) of the Income Tax Act (the "Act").

For the purpose of determining whether an individual has retired from an office or employment as contemplated by IT-337R2, the word "affiliate" is intended to be given its broadest meaning and includes any related person (within the meaning of section 251 of the Act) or any associated company or other organization (such as a college or university), or any organization that is a member of a group of persons that do not deal at arm's length notwithstanding that they may not be related or associated for other purposes of the Act.

Please note that the definition of a "person related to the employer" contained in paragraphs 60(j.1)(iv) and (v) of the Act should not be used in determining whether a person would be an affiliate of another for the purpose of determining whether a payment is a retiring allowance in accordance with the definition of that term contained at subsection 248(1) of the Act.

It should also be noted 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.

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