13 January 1998 External T.I. 9733375 - RETIRING ALLOWANCE PERSON RELATED TO EMPLOYER

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:

The meaning of a person related to the employer for purposes of calculating the amount of a retiring allowance to be transferred to a RRSP.

Position:

There is an expanded meaning where the business was acquired or where service with a previous employer is recognized in determining the retiree's pension benefits.

Reasons:

Subparagraphs 60(j.1)(iv) and (v) of the Act.

973337

XXXXXXXXXX Franklyn S. Gillman, LL.L., C.A.

Attention: XXXXXXXXXX

January 13, 1998

Dear Sirs:

Re: Retiring Allowance

Your facsimile dated December 11, 1997 to Daniel Desjardins of the Individual Returns and Payments Processing Directorate has been forwarded to us for consideration and reply.

Your query relates to a proposed transaction and we are therefore precluded from providing specific advice thereto except in the context of an advance income tax ruling. Although we cannot provide a specific answer to your query, we can provide the following general comments which, however, are not binding on the Department.

As we understand it, your concern is with the maximum amount of a retiring allowance which can be transferred to a registered retirement savings plan ("RRSP"). The specific issue is the number of years during which the employee was employed by "a person related to the employer".

Section 251 of the Income Tax Act (the “Act”) defines related persons for the purposes of the Act, but this provision requires one of the persons to be either an individual or a corporation. Paragraph 251(1)(a) of the Act refers only to individuals and 251(1)(c) refers only to corporations. Paragraph 251(1)(b) of the Act refers to a corporation and another person. Where neither of the persons is an individual or a corporation, they will not be related persons by virture of this provision. Nevertheless, attached to this letter is a copy of this provision of the law.”

Paragraph 60(j.1) of the Act is the specific provision which provides for the rollover of a retiring allowance to an RRSP, and it expands on the meaning of "a person related to the employer" for this purpose to include:

a) in subparagraph (iv), any person whose business was acquired or continued by the employer; and

b) in subparagraph (v), a previous employer of the retiree whose service therewith is recognised in determining the retiree's pension benefit.

The former provision does not seem to be of relevance. The latter provision applies where the pension benefits to be paid to the retiree relate to the years of service with the previous employer. This typically occurs where the employee's accrued benefits have been transferred from the former employer's pension plan or where the employee has purchased past service under the current employer's pension plan.

We trust that these general comments and explanation of the provisions will enable you to make the necessary determination based on the facts of specific cases.

Yours truly,

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

encl.