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 we reconsider our position that payments in respect of a reasonable notice period is employment income for purposes of the Act?
Reasons: Amounts paid in respect of the terms of employment contracts are treated as employment income. Where an amount is not paid under the contract but is awarded as damages for wrongful dismissal, it falls into the retiring allowance definition..
M. P. Sarazin
March 1, 1999
Re: Payment in Lieu of Notice and Retiring Allowances
This is in reply to your letter dated August 21, 1998, wherein you asked the Department to reconsider its position that payments in lieu of earnings for the period of a reasonable notice of termination by virtue of the terms of the taxpayer’s employment (explicit or implied), as expressed in paragraph 7 of Interpretation Bulletin IT-337R3, constitutes employment income and not retiring allowances.
You are of the view that the decision in The Queen v. George R. Albino (94 DTC 6071) (the “Case”) supports your argument that the payment of an amount in lieu of statutory notice of termination could also be considered a payment in recognition of long service and, as such, the payment would be a retiring allowance within the meaning assigned by paragraph (a) of the definition of retiring allowance in subsection 248(1) of the Income Tax Act (the “Act”).
We have reviewed the facts relating to the Case and we have concluded that the Case does not deal with the payment of an amount in lieu of statutory notice of termination. Consequently, the decision does not, in our view, support a change in our general position that a payment of an amount in lieu of reasonable notice constitutes employment income for purposes of the Act.
The Department’s basis for this position is the intended purpose of the payment. The purpose of a payment in lieu of earnings is to replace earnings which would otherwise have been earned under the contract of employment, whereas a payment in respect of loss of employment is intended to compensate the employee for that loss. A payment of the first type would be considered employment income and a payment of the second type would be considered a retiring allowance. The facts and circumstances of any particular situation would have to be reviewed to determine which categorization would be applicable to that situation.
We trust these comments will be of assistance.
Financial Industries Division
Income Tax Rulings and
Policy and Legislation Branch
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