23 February 1999 External T.I. 9825695 - RETIRING ALLOWANCE - RELATED EMPLOYER

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: Retiring Allowance; Years of Service with Related Employer

Position: Question of fact and general comments provided

Reasons: Per paragraph 60(j.1)

XXXXXXXXXX 				982569
G. Kauppinen
Attention:  XXXXXXXXXX 

February 23, 1999

Dear Sirs:

Re: Retiring Allowance

This is in reply to your letter dated October 5, 1998 wherein you requested our opinion as to when an individual would be considered to have been employed "by a person related to the employer" for the purposes of paragraph 60(j.1) of the Income Tax Act (the "Act").

Your question relates to a specific proposed transaction and therefore should be the subject of a formal request for an advance income tax ruling . We may, however, provide the following general comments which are not binding on the Department.

We would first point out that if a former employer of a retiring employee is "related" (within the meaning of the Act) to his or her current employer then it is not necessary that the employee's service with the former employee be recognized in determining the retiring employee's pension benefits. Subparagraph 60(j.1)(v) of the Act is an extension of the meaning of the phrase "person related to the employer" for the purposes of paragraph 60(j.1) of the Act.

All years of service with the Treasury Board of Canada as employer may be included in the calculation of eligible years under paragraph 60(j.1) as can years of service with an employer controlled by Her Majesty in Right of Canada. In the context of a corporation "control" means de jure control (i.e. ownership of more than 50% of the voting shares).

Where the corporation in question is incorporated without share capital, we are of the view that the principles in King George Hotels Limited v. M.N.R. 68 DTC 635 and HSC Research Development Corporation v. The Queen 95 DTC 225 may be applicable. Thus, if the majority of the members of the corporation or the board of directors is appointed by Her Majesty in Right of Canada, then the corporation would be considered to be controlled by Her Majesty in Right of Canada.

Enclosed is ATR-63 ("Donations to Agents of the Crown") which explains how an entity can be recognized as an agent of Her Majesty in right of a province . See in particular the first two paragraphs under the heading "Law and Analysis". Although the comments refer to agents of the provincial Crown, they are relevant for purposes of determining agency status vis-à-vis the federal Crown.

We trust our comments are of assistance.

Yours truly,

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