28 November 1997 External T.I. 9730465 - RETIRING ALLOWANCE, PART-TIME WORK

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:

Would agreement to work part-time immediately after retirement jeopardize the treatment of severance pay entitlement to be paid on retirement?

Position:

Yes

Reasons:

If agreement entered into before retirement then person not considered retired and severance pay will not qualify as a retiring allowance.

                                     	973046
XXXXXXXXXX		                                 M.P. Sarazin

November 28, 1997

Dear Sir:

Re: Retiring Allowance

This is in reply to your letter of November 2, 1997, wherein you requested our views on how an arrangement to continue to work part-time for your employer, XXXXXXXXXX, after your scheduled retirement on XXXXXXXXXX would affect the treatment of your severance pay entitlement that will be paid to you on XXXXXXXXXX.

The expression "retiring allowance" is defined in subsection 248(1) of the Income Tax Act (the "Act") to mean an amount 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. Generally, where an individual retires and is immediately thereafter re-employed by his former employer or an affiliated employer, the Department is of the view that the individual will not be considered to have retired. Therefore, you will not be considered to have retired if, before you retire, you enter into an arrangement to work part-time after your retirement date and, as a consequence thereof, the severance pay paid to you on XXXXXXXXXX will not qualify as a retiring allowance for purposes of the Act. However, as noted in paragraph 4(b) of Interpretation Bulletin IT-337R2, termination of employment because of mandatory retirement followed shortly by employment with an affiliate of the former employer will be considered retirement or loss of employment for purposes of the Act.

Where an employee has retired without any assurance at the time of retirement of being rehired by the former employer, and receives from the former employer a payment based on long service, it is the Department's position that the payment will qualify as a retiring allowance even if the parties have an understanding that the individual may be rehired at a later time. We would have to review all of the facts relating to a particular case to determine whether or not an arrangement to rehire a retired employee existed prior to the employee's retirement.

The amount of retiring allowance that is eligible for transfer to a registered retirement savings plan is limited to the least of

a)such portion of the retiring allowance included in your income for the year as is designated in your tax return;

b) an amount by which the aggregate of

A) $2,000 times the number of years before 1996 during which you were employed by the employer or a person related to the employer, and

B) $1,500 times the number by which the number of years before 1989 described in (A) exceeds the number that can reasonably be regarded as the equivalent number of years in respect of which employer contributions to a pension fund or deferred profit sharing plan of the employer or a person related to the employer had vested in you at the time of the payment of the retiring allowance,

exceeds the aggregate of all amounts previously deducted under paragraph 60(j.1) of the Act in respect of retiring allowances paid to you by the same employer or a person related to that same employer in previous years, and

c)the aggregate of all amounts paid by you in the year or within 60 days after the end of the year as a premium under your registered retirement savings plan other than any portion thereof that has been designated for the purposes of paragraph 60(j) or (l) of the Act, in respect of a transfer of pension benefits or a refund of premiums under a registered retirement savings plan, to the extent such amounts were not deducted in computing your income for a preceding taxation year.

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

c.c. Rick Owen

Client Services Directorate