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:
Whether two employers are "affiliates" for the purposes of determining whether a loss of employment or office or a retirement has occurred?
Position:
Unable to determine.
Reasons:
New Territory being created - Nunavut. We are uncertain of its legal status and of that of its predecessor and hence cannot determine whether both employers are dealing at arm's length.
XXXXXXXXXX 982391
P. -A. Sarrazin
January 21, 1999
Dear XXXXXXXXXX:
Re: Retiring Allowance
This is in reply to your letter of September 11, 1998, in which you requested our views on whether certain payments qualify as a retiring allowance as this term is defined under subsection 248(1) of the Income Tax Act (the "Act").
The Government of Northwest Territories (the "former employer") is being replaced by the Government of Nunavut (the "new employer") and some employees are being terminated by the former employer and re-hired by the new employer. You wish to find out if the severance payments to be made by the former employer to its employees qualifies as a retiring allowance.
Since your query is not part of a ruling request, our comments will present our general views with respect to the subject matter of your letter. These comments do not constitute an advance income tax ruling and therefore, as mentioned in paragraph 22 of Information Circular 70-6R3, are not binding on the Department.
Subsection 248(1) of the Act defines a retiring allowance as an amount (other than a superannuation or pension benefit, an amount received as a consequence of the death of an employee or a benefit described in subparagraph 6(1)(a)(iv)) received
(a) on or after retirement of a taxpayer from an office or employment in recognition of the taxpayer's long service, or
(b) in respect of a loss of an office or employment of a taxpayer, whether or not received as, on account or in lieu of payment of, damages or pursuant to an order or judgement of a competent tribunal,
by the taxpayer or, after the taxpayer's death, by a dependant or a relation of the taxpayer or by the legal representative of the taxpayer.
As stated in IT-337R3, Retiring Allowances (attached), retirement or loss of an office or employment does not include termination of employment with an employer followed by re-employment with an affiliate of the employer pursuant to an arrangement made prior to the termination of employment. For the purposes of IT-337R3, "affiliate" includes any related or associated corporation, or any corporation that is a member of a group of corporations that do not deal at arm's length, notwithstanding that they may not be related or associated for the purposes of the Act.
A significant issue, therefore, is whether the former employer and the new employer are dealing at arm's length. In the context of a general opinion on this subject and with the limited amount of information we have, we are unable to make such a determination. Some of the factors which may be considered in determining whether the new and former employers are dealing at arm's length are the following: the agency agreement between the two employers, the legal status of both employers i.e. whether they are creations of the federal government or whether there is a Crown in Right of the new and the former employer, whether they coexist at some point in time and whether one is the successor of the other.
We note that you have been in contact with our Edmonton Tax Services Office and have provided them with additional information on this subject. We also note that their opinion on the tax status of this proposed payment is more definitive than the comments we are able to provide. However, as noted in their letter of July 28, 1998, these comments are opinions only and should you wish to obtain certainty as to the tax consequences of the proposed payments, you should seek an Advance Tax Ruling pursuant to the procedures in Information Circular No. 70-6R3 (attached).
We trust that these comments will be of assistance.
Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
Attachments
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