30 November 1997 Ruling 9733893 - 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:

A) Would an amount be considered a retiring allowance;
B) Would the employee be entitled to a deduction for the said amount under paragraph 60(j.1) of the Act;

C) Would the same amount be deductible by the employer.

Position:

A) Yes;
B) Yes;

C) Yes.

Reasons:

In accordance with the Act and guideline provided in Question 10 at the 1992 Prairie Tax Conference Round Table and prior rulings given.

XXXXXXXXXX							973389
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1998

Dear Sirs:

Re: Advance Income Tax Ruling on the Payment of a Retiring
Allowance from XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the above noted taxpayers. Further to our telephone conversation of XXXXXXXXXX and your letter of XXXXXXXXXX, you provided additional information with respect to the facts and proposed transactions provided in your previous letter.

DEFINITIONS AND ABBREVIATIONS

In this letter, the following terms have the meanings specified:

(a) "Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as amended to the date hereof, and unless otherwise stated, every reference herein to a Part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act;

(b) "BCA" means Business Corporations Act, S.A. 1981, c. B-15;

(c) "Deferred profit sharing plan" ("DPSP") has the meaning assigned by subsection 147(1);

(d) "Registered retiring savings plan" ("RRSP") has the meaning assigned by subsection 146(1);

(e) "Retiring allowance" ("RA") has the meaning assigned by subsection 248(1);

In this letter, the names of various persons or entities referred to herein are abbreviated as follows:

Abbreviated Name Full Name

Holdco			XXXXXXXXXX

Opco				XXXXXXXXXX

Prevco			XXXXXXXXXX

JV				Joint venture known as XXXXXXXXXX

Mr. A			XXXXXXXXXX

Mrs. A			XXXXXXXXXX

FACTS

1. Opco was incorporated in XXXXXXXXXX under the provisions of the BCA on XXXXXXXXXX.

2. Opco has a XXXXXXXXXX year-end. The issued capital of Opco consists of XXXXXXXXXX Common shares of which Holdco owns XXXXXXXXXX and Mrs. A owns XXXXXXXXXX. Mr. A owns XXXXXXXXXX of the issued Common shares of Holdco and Mrs. A owns XXXXXXXXXX issued Common share.

3. Mr. A was born on XXXXXXXXXX.

4. Prevco, a body corporate, carried on a XXXXXXXXXX (the "Business") from XXXXXXXXXX to XXXXXXXXXX. Mr. A was employed by Prevco during the same period.

5. Mr. A has continuously owned shares of Prevco since its incorporation with his shareholdings fluctuated between XXXXXXXXXX% and XXXXXXXXXX%, specifically, he owned XXXXXXXXXX% from XXXXXXXXXX to XXXXXXXXXX.

6. On XXXXXXXXXX, Prevco was owned by XXXXXXXXXX shareholders.

7. The JV has XXXXXXXXXX participants including Opco. The JV has a XXXXXXXXXX year-end.

8. On XXXXXXXXXX, XXXXXXXXXX participants in the JV had XXXXXXXXXX shareholders of Prevco as shareholder.

9. On XXXXXXXXXX, the Business has been transferred from Prevco to the JV. On XXXXXXXXXX, Prevco ceased to carry on the Business and the JV commenced to continue to carry on the same Business in the Province of XXXXXXXXXX.

10. For less than XXXXXXXXXX, the JV rented equipment from Prevco to carry out the contractual obligations of Prevco pursuant to XXXXXXXXXX contracts.

11. Prevco did not earn any taxable income and ceased to file its corporate income tax returns for years ending after XXXXXXXXXX. Prevco was dissolved in XXXXXXXXXX.

12. Mr. A's earned income from Prevco and Opco since XXXXXXXXXX has been as follows:

Year		Income		Year		Income	Year		Income

XXXXXXXXXX

XXXXXXXXXX

(a) Income is estimated for the period from XXXXXXXXXX to XXXXXXXXXX.

(b) Income of XXXXXXXXXX includes income from both Prevco and Opco.

(c) For XXXXXXXXXX, income is accumulated from XXXXXXXXXX to XXXXXXXXXX.

13. Prevco made contributions under a DPSP which vested in Mr. A as follows:

		Year		Contributions

			XXXXXXXXXX

14. From XXXXXXXXXX, Mr. A has carried the title of President and General Manager and also was a senior officer of Prevco.

15. Mr. A is the president of Opco and carries out Opco's duties and responsibilities as a participant of the JV which include the general management, bidding, estimating, job supervision, arranging financing and reporting on the financial condition of the JV.

16. After XXXXXXXXXX, Opco will cease to carry on any type of business and will not be a participant in the JV as the JV was terminated on XXXXXXXXXX. Opco will continue to earn investment income from assets consisting primarily of shares in public corporations.

17. Mr. A will terminate his employment with Opco effective XXXXXXXXXX and will not continue to be employed by Opco in any manner whatsoever.

18. After XXXXXXXXXX, Mr. A will continue to be a director of Opco and he will continue to provide certain administrative duties for Opco for which no remuneration or director's fee will be received.

19. Neither Prevco nor Opco (nor the JV) has ever made any contributions to a pension plan (other than to the Canada Pension Plan) on behalf of Mr. A.

PROPOSED TRANSACTIONS

20. In recognition of his long service, Opco proposes to pay a retiring allowance to Mr. A. The proposed allowance will be the sum of $XXXXXXXXXX for each year of employment with Prevco or Opco from XXXXXXXXXX inclusive (XXXXXXXXXX years), and $XXXXXXXXXX for each year of employment with the same employers from XXXXXXXXXX inclusive (XXXXXXXXXX years). The total amount of the retiring allowance contemplated is $XXXXXXXXXX payable on XXXXXXXXXX.

21. Subject to receiving a favourable Advance Income Tax Ruling, Opco will pay the RA directly to an RRSP of which Mr. A is the annuitant. Mr. A will report the receipt of the RA and a corresponding deduction pursuant to paragraph 60(j.1) in the relevant T1 income tax return.

ADDITIONAL INFORMATION

22. The address of Mr. A, Holdco and Opco is:

		XXXXXXXXXX

23. Mr. A's social insurance number is XXXXXXXXXX.

24. Opco's corporate account number is XXXXXXXXXX.

25. Holdco's business identification number is XXXXXXXXXX.

26. The taxpayers mentioned under section 22. to 24. above deal with XXXXXXXXXX Tax Services Office and XXXXXXXXXX Taxation Centre.

27. To the best of your knowledge, none of the issues involved in this ruling are being considered by a Tax Services Office or Taxation Centre in connection with a tax return already filed, and none of the issues are under objection or appeal.

RULINGS

Provided the above statement of facts and proposed transactions are accurate and constitute a complete disclosure of all relevant facts and provided the transactions are completed as proposed, we rule as follows:

A. The proposed payment of $XXXXXXXXXX will qualify as a RA and will be included in Mr. A's income in his XXXXXXXXXX return under subparagraph 56(1)(a)(ii).

B. Mr. A will be entitled to a deduction under paragraph 60(j.1) on the payment of the RA to an RRSP of which he is the annuitant.

C. Opco will be entitled to a deduction in respect of the payment of the RA in computing its income for the taxation year of payment.

These rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R3 of December 30, 1996, issued by Revenue Canada Taxation, and are binding provided the proposed transactions are initiated on or before XXXXXXXXXX.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate