30 November 1997 Ruling 9802253 - 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 under paragraph 60(j.1) of the Act;

C) Would a retiring allowance 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							3-980225
									XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1998

Dear Sirs:

Re: Advance Income Tax Ruling Request
XXXXXXXXXX

This is in reply to your letter received on XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of XXXXXXXXXX. We also acknowledge the information provided by your facsimile submissions of XXXXXXXXXX, as well as during our telephone conversations (XXXXXXXXXX).

DEFINITIONS AND ABBREVIATIONS

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

(a) "Act" means the Income Tax Act, 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) "Registered retiring savings plan" ("RRSP") has the meaning assigned by subsection 146(1);

(c) "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

Opco					XXXXXXXXXX

Newco				XXXXXXXXXX

Mrs. A				XXXXXXXXXX

Mr. A				XXXXXXXXXX

FACTS

1. Opco was incorporated in XXXXXXXXXX; Mr. A is the president and sole shareholder of Opco. The fiscal year end of Opco is XXXXXXXXXX. Mrs. A and Mr. A are and have been the sole employees of Opco from its incorporation.

2. Newco was incorporated in XXXXXXXXXX with three unrelated shareholders holding one third of the shares each. Opco is one of these shareholders. Opco sold its name and all its business activities to Newco in XXXXXXXXXX. Since XXXXXXXXXX, Opco has provided management services to Newco.

3. The purpose of the XXXXXXXXXX reorganization was to expand the business operations and secure supplies. The results were not as expected. In this regard, from XXXXXXXXXX, Opco did not receive any dividends, nor did Mrs. A or Mr. A receive any wages, from Newco.

4. In XXXXXXXXXX Opco disposed of its shares of Newco.

5. Since XXXXXXXXXX, Opco has tried to develop new business opportunities, but none have developed successfully. Mr. A expects to wind-up Opco in XXXXXXXXXX.

6. Mr. A's compensation from Opco since XXXXXXXXXX has been as follows:

		Year			Income		Year			Income

XXXXXXXXXX

7. Mrs. A's compensation from Opco since XXXXXXXXXX has been as follows:

		Year			Income		Year			Income

XXXXXXXXXX

PROPOSED TRANSACTIONS

8. In recognition of their long service, from XXXXXXXXXX, Opco proposes to pay a retiring allowance to both Mrs. A and Mr. A. The proposed allowance amount will be $XXXXXXXXXX for Mrs. A and $XXXXXXXXXX for Mr. A. (In XXXXXXXXXX, Opco's total assets including cash is approximately $XXXXXXXXXX).

9. Subject to receiving a favourable Advance Income Tax Ruling, Opco will pay the RA before the end of Opco's fiscal year end of XXXXXXXXXX. Each RA amount will be rolled to an RRSP of which Mrs. A or Mr. A, as the case may be, is the annuitant.

ADDITIONAL INFORMATION

10. To the best of your knowledge and that of Opco none of the issues in respect of which rulings are herein requested is:

(a) in an earlier return of Opco or a related person,

(b) being considered by a tax services office or tax centre in connection with a previously filed tax return of Opco,

(c) under objection by Opco or a related person,

(d) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, and

(e) the subject of a ruling previously issued by the Directorate.

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 two payments of $XXXXXXXXXX each will qualify as a RA and will be included respectively in Mrs. A and Mr. A's income in her and his XXXXXXXXXX return under subparagraph 56(1)(a)(ii).

B. Each of Mrs. A and Mr. A will be entitled to a deduction under paragraph 60(j.1), to the extent permitted by that paragraph, on the subsequent contributions of the RA amount to an RRSP of which she or he, as the case may be, is the annuitant.

C. For the purposes of section 67 the payments of the RA stated in Ruling A will be reasonable and will be deductible in computing Opco's 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
Policy and Legislation Branch