30 November 1997 Ruling 9816413 - RETIRING ALLOWANCE PAID TO SPOUSE

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) Will an amount paid by a farmer to the farmer’s spouse be considered a retiring allowance?

B) Will the recipient be entitled to a deduction under paragraph 60(j.1) of the Act for the payment of the amount into an RRSP?

C) Will the amount be deductible by the farmer?

Position:

A) Yes.

B) Yes.

C) Yes.

Reasons:

The payment is in compliance with the Act and the file is similar to prior rulings given in such circumstances.

XXXXXXXXXX
XXXXXXXXXX 		981641
XXXXXXXXXX 

Attention: XXXXXXXXXX

XXXXXXXXXX, 1998

Dear Sirs:

Re: XXXXXXXXXX
XXXXXXXXXX
Retiring Allowance

This is in reply to your letter of XXXXXXXXXX and received by us on XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the above noted taxpayers.

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;

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

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

(d) “Employer” means: XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

(e) “Employee” means XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

FACTS

1. The Employee was born on XXXXXXXXXX and was married to the Employer on XXXXXXXXXX.

2. The Employee has been employed by the Employer in the operation of a farm since their marriage. The Employee has not been employed by any other farm or business.

3. The Employer has never contributed to a deferred profit sharing plan or pension plan other than the Canada Pension Plan, on behalf of the Employee and the Employee has no entitlements under any such plans.

4. The Employee did not receive any salary prior to XXXXXXXXXX as a result of her employment because of the provisions of former subsection 74(3) of the Act. For the past XXXXXXXXXX years the Employee’s salary has been as follows:

XXXXXXXXXX

5. The Employer began reducing the size of his farm operations in XXXXXXXXXX due to health reasons. The Employer wishes to retire from farming and either sell the farm or rent out the farm land in XXXXXXXXXX. Once the farming operation is terminated the Employee will no longer be employed by the Employer.

PROPOSED TRANSACTION

6. The Employer proposes to pay the Employee a retiring allowance of $XXXXXXXXXX. As discussed during our telephone conversation of XXXXXXXXXX the payment will likely be made in XXXXXXXXXX.

7. The Employee proposes to have the full amount of the retiring allowance contributed to an RRSP under which the Employee is the annuitant. It is expected this will be done through a direct transfer by the Employer.

PURPOSE OF THE PROPOSED TRANSACTION

8. The Employer wishes to pay the Employee a retiring allowance in recognition of her long and loyal service in the farm business and in respect of her loss of employment.

ADDITIONAL INFORMATION

9. To the best of your knowledge and that of the Employer and Employee, the issues related to this request:

(i) have not previously been reported in the Employer’s, Employee’s or any related party’s prior income tax returns:

(ii) are not being considered by a tax services office in connection with any of the Employee’s or a related party’s prior income tax return;

(iii) are not under objection by the Employee or a related person;

(iv) are not before the courts; and

(v) are not the subject of a ruling previously issued by this 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 payment of $XXXXXXXXXX will qualify as a retiring allowance as defined in subsection 248(1) of the Act and will be included in the Employee’s income in 1998 under subparagraph 56(1)(a)(ii) of the Act.

B. The proposed payment of $XXXXXXXXXX to the Employee’s RRSP will be deductible by the Employee pursuant to paragraph 60(j.1) of the Act to the extent permitted therein.

C. The amount of $XXXXXXXXXX will be deductible by the Employer in computing income from the business of farming for the year in which it is paid and will be considered reasonable for the purposes of section 67 of the Act.

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

Yours truly,

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